Full Blown Active Management
Full blown active approaches seek only return maximization. They are subject to large mismatches on any risk factor, including duration, in order to add value relative to the index. This is an aggressive style of portfolio management for bonds, where large duration and sector based approach is followed by managers.
One of the attractions for bond managers in following this strategy is that the full blown active management offers the leverage of offering a relatively higher return out of bonds, albeit by undertaking some more risk. Another typical advantage of following the same is the freedom it allows the manager and has no specified time durations, which could vary.
However, on the dark side, the full blown active management involves a high degree of risk compared to bond indexing or enhancing index strategy or even active management. Apart from this, the tracking error also increases as the discretion of the manager rises and draws away from the pure indexing strategy. While the returns could be high by taking higher degree of risk, the management fees also tends to be much higher than other strategies.
This content is for paid members only.
Join our membership for lifelong unlimited access to all our data science learning content and resources.