Talking Index with Bloomberg: Lost in the Spread – Active Bond Alpha

While active equity managers are frequently criticized for underperforming their benchmarks, the belief persists that fixed income is a more favorable arena for active management. But how much of that belief is supported by evidence, and how much rests on assumptions that have received relatively little scrutiny? As we examine active bond funds more closely, it becomes clear that a meaningful portion of the excess returns attributed to active management may stem from systematic exposures—particularly to credit risk—rather than from manager skill. In many cases, what appears to be alpha may simply be beta hiding in plain sight, lost in the spread between stated benchmarks and the actual risks being taken. In a market where transparency and cost efficiency are increasingly prioritized, it’s worth asking: What are the true drivers of active fixed income returns—and how should investors evaluate alpha in today’s bond market?