Systematic fixed income strategies: An innovative framework for bond investing
The evolution of global markets and technological advances have enabled systematic fixed income approaches to complement traditional fixed income investment approaches, potentially enhancing diversification and custom alpha-driven opportunities.
Highlights
- The rise of data analytics and highly sophisticated quantitative techniques has allowed for advances in systematic fixed income strategies that may complement traditional active and passive bond allocations.
- Systematic fixed income investing combines the rigor of academic research and technology to apply investment factors in portfolio construction, using large data sets to uncover differentiated sources of alpha for bond investors.
- Growing trends—such as the proliferation of high-quality market data, the rise of electronic trading, and the availability of alternative datasets, combined with advances in machine learning and cloud-based analytics—are accelerating systematic fixed income investing opportunities.
- In some cases, systematic fixed income strategies have offered lower correlation of excess returns relative to fundamental approaches, as well as lower volatility of excess returns during periods of market or geopolitical stress.
- Fidelity’s systematic fixed income team can customize solutions across the global bond market universe—such as core, core-plus, high yield, non-traditional bond, municipal bonds, income or liability-driven objectives, among others.
An overview of passive and active fixed income strategies and where systematic approaches fit in.
| Passive strategies | Active strategies | ||
|---|---|---|---|
| Traditional beta Seeks to replicate traditional market cap-based indices |
"Smart" beta Factor-based indices designed to outperform traditional benchmarks Goals: Seeks to enhance returns, improve diversification, or reduce risk Factor investing strategies span passive and active approaches |
Systematic alpha Seeks active returns from a diversified source of standard and proprietary factors, as well as implementation opportunities Goals: Seeks to enhance returns, improve diversification, and mitigate risks while offering customized solutions, or targeted exposures Factor investing strategies span passive and active approaches |
Traditional alpha Seeks to outperform peers through fundamental research |
| Lower risks/seeks to replicate or outperform indices ⟷ Higher risk-adjusted return potential | |||
Source: Fidelity Investments. For Illustrative purposes only.
