{"id":144686,"date":"2026-10-27T15:51:03","date_gmt":"2026-10-27T19:51:03","guid":{"rendered":"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/markets\/a-total-portfolio-approach-to-fixed-income\/"},"modified":"2026-10-27T15:54:19","modified_gmt":"2026-10-27T19:54:19","slug":"a-total-portfolio-approach-to-fixed-income","status":"publish","type":[3762],"link":"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/markets\/a-total-portfolio-approach-to-fixed-income\/","title":{"rendered":"A Total Portfolio Approach to fixed income"},"content":{"rendered":"<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf576db29'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-7\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer bbg-spacer--lg\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p class=\"small\"><strong><span style=\"font-size: 14px; letter-spacing: 1px; color: #0062dd;\">ARTICLE<\/span><\/strong><\/p>\n\n<\/div>\n<div\n    class=\"bbg-spacer bbg-spacer--sm\"\n    >\n<\/div>    <h1 class=\"bbg-metadata bbg-metadata--title\">A Total Portfolio Approach to fixed income<\/h1>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 50px !important\"\n    >\n<\/div>    <ul class=\"bbg-categories_list\">\n                    <li>\n                <a href=\"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/category\/fixed-income\/\" rel=\"category tag\">\n                    Fixed Income\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/professional.content.cirrus.bloomberg.com\/professional2023\/insights\/category\/markets\/\" rel=\"category tag\">\n                    Markets\n                <\/a>\n            <\/li>\n            <\/ul>\n<\/p>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-5\"\n    style=\"\"\n    >\n    <div id=\"\" class=\"wpb_content_element bbg-single-image align-left\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"1200\" height=\"800\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/404808231rsz.jpg\" class=\"bbg-single-image__image attachment-full\" alt=\"office building view\" title=\"office building view\" \/>\n        \n            <\/figure>\n<\/div>\n\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf5778f9e'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-6 bbg-column--m-width-6\"\n    style=\"\"\n    >\n    <p>    <p class=\"bbg-metadata bbg-metadata--date\">October 27, 2026<\/p>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><strong>Bloomberg Professional Services<\/strong><\/p>\n\n<\/div>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2 bbg-column--valign-middle bbg-column--m-width-2 bbg-column--s-padding-right-2\"\n    style=\"\"\n    >\n    <div class=\"bb-tts\"\n\tdata-selector=\"main\"\n\tdata-label=\"Speak this page\"\n\tdata-custom-play=\"Play\"\n\tdata-custom-pause=\"Pause\"\n\tdata-custom-stop=\"Stop\"\n\tdata-overlay=\"false\"\n\tdata-invert=\"false\"\n\tdata-no-time=\"false\"\n\tdata-no-button-text=\"false\"\n\tdata-one-button=\"true\"\n\tdata-one-style=\"true\"\n\tdata-hide-stop=\"true\"\n\tdata-voice=\"Gordon\"\n\tdata-pitch=\"1\"\n\tdata-speed=\"1\"\n\tdata-align=\"flex-start\"\n>\n<\/div>\n\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf577bab1'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8 bbg-column--has-bg-color\"\n    style=\"background-color:#e6f3ff;border-radius: 16px 16px 16px 16px;\"\n    >\n    <div class=\"wpb_content_element bbg-card  bbg-card-custom bbg-card-text-black\" id=\"card_1\" data-card_type=\"no_image\">\n      <style>#card_1 .bbg-card__innerwrapper {background-color: #e6f3ff;}#card_1 .bbg-card__innerwrapper {\n\tborder: 1px solid #e6f3ff !important;\n\t}#card_1:hover .bbg-card__innerwrapper {\n\tborder: 1px solid #e6f3ff !important;\n\t}#card_1 .bbg-card__innerwrapper {\n\tpadding: calc(var(--brand-large-padding, 40px) - 1px) !important;\n\t}#card_1 .bbg-card__innerwrapper .bbg-card__title {\n\tcolor: #000000 !important;\n\t}#card_1 .bbg-card__innerwrapper .bbg-card__content,#card_1 .bbg-card__innerwrapper .bbg-card__content p  {\n\tcolor: #000000 !important;\n\t}#card_1.bbg-card_hasImage .bbg-card__innerwrapper{padding-top: calc(var(--brand-default-padding, 16px) - 1px);padding-left: calc(var(--brand-default-padding, 16px) - 1px);padding-right: calc(var(--brand-default-padding, 16px) - 1px);}<\/style>\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n              <div class=\"bbg-card__eyebrow\" style=\"color: #000000\">KEY TAKEAWAYS<\/div>\n      \n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><\/p>\n<ul>\n<li><span class=\"TextRun SCXW10776633 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW10776633 BCX0\"><span class=\"TextRun SCXW64729709 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW64729709 BCX0\">Fixed income can play <\/span><span class=\"NormalTextRun SCXW64729709 BCX0\">different roles<\/span><span class=\"NormalTextRun SCXW64729709 BCX0\"> within a portfolio depending on its mix of interest-rate and credit risk.<\/span><\/span><span class=\"EOP Selected SCXW64729709 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/span><\/span><\/li>\n<li><span class=\"TextRun SCXW91392350 BCX0\" lang=\"EN-US\" xml:lang=\"EN-US\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW91392350 BCX0\"><span class=\"TextRun SCXW85343500 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW85343500 BCX0\">A fixed<\/span> <span class=\"NormalTextRun SCXW85343500 BCX0\">income portfolio <\/span><span class=\"NormalTextRun SCXW85343500 BCX0\">optimized<\/span><span class=\"NormalTextRun SCXW85343500 BCX0\"> on its own may look <\/span><span class=\"NormalTextRun SCXW85343500 BCX0\">very different<\/span><span class=\"NormalTextRun SCXW85343500 BCX0\"> once equity exposure is considered.<\/span><\/span><span class=\"EOP Selected SCXW85343500 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/span><\/span><\/li>\n<li><span class=\"NormalTextRun SCXW42909634 BCX0\"><span class=\"TextRun SCXW179022153 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW179022153 BCX0\">A Total Portfolio Approach can help investors assess fixed income based on its contribution to overall portfolio risk and return rather than as a standalone allocation.<\/span><\/span><span class=\"EOP Selected SCXW179022153 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/span><\/li>\n<\/ul>\n<p>\n<\/div>\n          <\/div>\n\n      <\/div>\n\n  <\/div>\n\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf577eb26'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><em><span class=\"TextRun SCXW178079970 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW178079970 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\" data-ccp-parastyle-defn=\"{&quot;ObjectId&quot;:&quot;be1baac0-2529-51c7-ba60-816a7f415f40|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1&quot;,201340122,&quot;2&quot;,134234082,&quot;true&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1&quot;,335572020,&quot;1&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,335559740,&quot;240&quot;,201341983,&quot;0&quot;,335559739,&quot;120&quot;,335551550,&quot;6&quot;,335551620,&quot;6&quot;,134245417,&quot;false&quot;,469777929,&quot;Systematic Strategies Sub-Header 1 Char&quot;,469778324,&quot;Normal&quot;&#093;}\" data-ccp-parastyle-linked-defn=\"{&quot;ObjectId&quot;:&quot;d6ef1ad6-057d-5b89-802c-47fcb5d9b06d|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1 Char&quot;,201340122,&quot;1&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1Char&quot;,335572020,&quot;1&quot;,134231262,&quot;true&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,469777929,&quot;Systematic Strategies Sub-Header 1&quot;,469778324,&quot;Default Paragraph Font&quot;&#093;}\">This article was written by Vikas Jain, Index Quant Research and <\/span><span class=\"NormalTextRun SpellingErrorV2Themed SCXW178079970 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">Yingjin<\/span><span class=\"NormalTextRun SCXW178079970 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> Gan, Head of Index Research at Bloomberg<\/span><\/span><span class=\"EOP Selected SCXW178079970 BCX0\" data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/em><\/p>\n<p><span class=\"TextRun SCXW256520317 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\" data-ccp-parastyle-defn=\"{&quot;ObjectId&quot;:&quot;be1baac0-2529-51c7-ba60-816a7f415f40|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1&quot;,201340122,&quot;2&quot;,134234082,&quot;true&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1&quot;,335572020,&quot;1&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,335559740,&quot;240&quot;,201341983,&quot;0&quot;,335559739,&quot;120&quot;,335551550,&quot;6&quot;,335551620,&quot;6&quot;,134245417,&quot;false&quot;,469777929,&quot;Systematic Strategies Sub-Header 1 Char&quot;,469778324,&quot;Normal&quot;&#093;}\" data-ccp-parastyle-linked-defn=\"{&quot;ObjectId&quot;:&quot;d6ef1ad6-057d-5b89-802c-47fcb5d9b06d|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1 Char&quot;,201340122,&quot;1&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1Char&quot;,335572020,&quot;1&quot;,134231262,&quot;true&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,469777929,&quot;Systematic Strategies Sub-Header 1&quot;,469778324,&quot;Default Paragraph Font&quot;&#093;}\">The <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">traditional <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">60\/40 portfolio <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">construction draws heavily <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">on <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">different roles<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> played by equity and fixed income in a multi-asset portfolio<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">: equities provide growth, while bonds <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">p<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">rovide income, <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">diversification<\/span> <span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">and<\/span> <\/span><span class=\"TextRun SCXW256520317 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">lower<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> portfolio volatility<\/span><\/span><span class=\"TextRun SCXW256520317 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">.<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> B<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ut \u201c<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">fixed income<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">\u201d <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">is<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> not <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">a single economic <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">exposure. A corporate bond<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">, for example,<\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> combines interest-rate and credit risk, and those components can play <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">very different<\/span> <span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">roles in a broader <\/span><span class=\"NormalTextRun SCXW256520317 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">portfolio.<\/span><\/span><span class=\"EOP Selected SCXW256520317 BCX0\" data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf578098a'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-3\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer bbg-spacer--sm\"\n    >\n<\/div><hr class=\"bbg-separator bbg-separator-1\" style=\"height:1px;\" \/>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 32px !important\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p class=\"small\"><strong><span style=\"font-size: 14px; letter-spacing: 1px;\">PRODUCT MENTIONS<\/span><\/strong><\/p>\n\n<\/div>\n\n<div\n  id=\"cta_5506844924630941220\"\n  class=\"wpb_content_element bbg-cta no-icon\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p left\">\n      <a\n        class=\"bbg-cta-link link\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/products\/indices\/fixed-income\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"Bloomberg Fixed Income Indices\"\n        >\n                      Bloomberg Fixed Income Indices\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n<div\n    class=\"bbg-spacer bbg-spacer--sm\"\n    >\n<\/div><div\n    class=\"bbg-spacer\"\n        style=\"height: 32px !important\"\n    >\n<\/div><hr class=\"bbg-separator bbg-separator-1\" style=\"height:1px;\" \/>\n<\/p>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-1\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-6\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span class=\"TextRun SCXW177484380 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\" data-ccp-parastyle-defn=\"{&quot;ObjectId&quot;:&quot;be1baac0-2529-51c7-ba60-816a7f415f40|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1&quot;,201340122,&quot;2&quot;,134234082,&quot;true&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1&quot;,335572020,&quot;1&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,335559740,&quot;240&quot;,201341983,&quot;0&quot;,335559739,&quot;120&quot;,335551550,&quot;6&quot;,335551620,&quot;6&quot;,134245417,&quot;false&quot;,469777929,&quot;Systematic Strategies Sub-Header 1 Char&quot;,469778324,&quot;Normal&quot;&#093;}\" data-ccp-parastyle-linked-defn=\"{&quot;ObjectId&quot;:&quot;d6ef1ad6-057d-5b89-802c-47fcb5d9b06d|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1 Char&quot;,201340122,&quot;1&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1Char&quot;,335572020,&quot;1&quot;,134231262,&quot;true&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,469777929,&quot;Systematic Strategies Sub-Header 1&quot;,469778324,&quot;Default Paragraph Font&quot;&#093;}\">That distinction matters when deciding how much credit and duration to <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">hold<\/span><span class=\"NormalTextRun CommentStart CommentHighlightPipeRest CommentHighlightRest SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">.<\/span><\/span> <span class=\"TextRun SCXW177484380 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">We separate <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">fixed income<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> returns into two <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">broad <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">factor<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">s<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">: <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">duration<\/span> <span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">factor <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">representing<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> interest rate exposure<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">, <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">and<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> credit factor<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">, <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">representing<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> credit <\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">spread and default risk. The<\/span> <span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">appropriate balance<\/span><span class=\"NormalTextRun SCXW177484380 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\"> between the two depends not only on their standalone risk and return, but also on how they interact with the rest of the portfolio.<\/span><\/span><span class=\"EOP Selected SCXW177484380 BCX0\" data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n\n<\/div>\n\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf578449b'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"none\">The traditional two-step approach first decides on the optimal equity-fixed income asset mix, then constructs the optimal equity and fixed income portfolios. However, as we show in our analysis below, the standalone optimal fixed income portfolio can differ significantly from the fixed income allocation implied by the top-level asset allocation exercise, creating an inconsistency between asset allocation and portfolio implementation.<\/span><span data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">This exercise illustrates a central principle of<strong> Total Portfolio Approach (TPA)<\/strong> to evaluate investment decisions based on their contribution to the overall portfolio rather than within individual asset-class silos.\u00a0<\/span><span data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none row-padding--bottom-none bbg-row--margin-top-compact bbg-row--margin-bottom-compact bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf5785d40'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <div\n    class=\"bbg-column\"\n    style=\"\"\n    >\n    <div class=\"bbg-interstitial\" aria-label=\"interstitial\" tabindex=\"0\">\n\t<style>\n\t\t.bbg-interstitial #card_2.bbg-card_hasCta{\n\t\t\tbackground: url(https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/Interstitial_bg.png);\n\t\t\t\tbackground-repeat: no-repeat;\n\t\t\t\tbackground-position: center center;\n\t\t\t\tbackground-size: cover;\n\t\t\tpadding: 104px;\n\t\t\t\n\t\t\t\n\t\t}\n\t\t.bbg-interstitial #card_2.bbg-card_hasCta .bbg-card__content, .bbg-interstitial #card_2.bbg-card_hasCta .bbg-card__content p{\n\t\t\tcolor:white;\n\t\t}\n\t\t@media (max-width: 768px) {\n\t\t\t.bbg-interstitial #card_2.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 32px;\n\t\t\t}\n\t\t}\n\t\t@media (max-width: 480px) {\n\t\t\t.bbg-interstitial #card_2.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 18px;\n\t\t\t}\n\t\t}\n\t<\/style>\n\t<div class=\"wpb_content_element bbg-card  bbg-card-dark bbg-card_hasCta has_interstitial\" id=\"card_2\" data-card_type=\"no_image\">\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n      \n                      <h3 class=\"bbg-card__title\">Tailored indices insights and invitations in your inbox<\/h3>\n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><p>Sign up<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_7908773079231283687\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/explore\/indices-insights-tailored-to-your-interests\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-6ae5bf5789382'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2><span class=\"TextRun SCXW170041717 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\" data-ccp-parastyle-defn=\"{&quot;ObjectId&quot;:&quot;be1baac0-2529-51c7-ba60-816a7f415f40|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1&quot;,201340122,&quot;2&quot;,134234082,&quot;true&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1&quot;,335572020,&quot;1&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,335559740,&quot;240&quot;,201341983,&quot;0&quot;,335559739,&quot;120&quot;,335551550,&quot;6&quot;,335551620,&quot;6&quot;,134245417,&quot;false&quot;,469777929,&quot;Systematic Strategies Sub-Header 1 Char&quot;,469778324,&quot;Normal&quot;&#093;}\" data-ccp-parastyle-linked-defn=\"{&quot;ObjectId&quot;:&quot;d6ef1ad6-057d-5b89-802c-47fcb5d9b06d|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1 Char&quot;,201340122,&quot;1&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1Char&quot;,335572020,&quot;1&quot;,134231262,&quot;true&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,469777929,&quot;Systematic Strategies Sub-Header 1&quot;,469778324,&quot;Default Paragraph Font&quot;&#093;}\">Constructing <\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">an <\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">o<\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ptimal<\/span> <span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">f<\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ixed<\/span> <span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">i<\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ncome <\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">p<\/span><span class=\"NormalTextRun SCXW170041717 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ortfolio<\/span><\/span><span class=\"EOP Selected SCXW170041717 BCX0\" data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/h2>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span class=\"TextRun SCXW187329606 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW187329606 BCX0\">A diversified <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">fixed income<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> portfolio<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> can be constructed in many ways<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">. <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">In this exercise, we use the classical mean<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">&#8211;<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">variance optimization framework<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> using the <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">duration<\/span> <span class=\"NormalTextRun SCXW187329606 BCX0\">and spread factors<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">.<\/span> <span class=\"NormalTextRun SCXW187329606 BCX0\">T<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">he maximum-Sharpe <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">portfolio<\/span> <span class=\"NormalTextRun SCXW187329606 BCX0\">is<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> close to 40% <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">duration<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> and 60% credit<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> spread<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">. <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">T<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">he <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">duration<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\"> factor is <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">represented by <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">the return of 10-year US Treasuries over Treasury bills, while the credit factor is <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">represented by <\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">the excess return of US corporate bonds over key-rate-duration-matched Treasuries.<\/span><span class=\"NormalTextRun SCXW187329606 BCX0\">\u00a0<\/span><\/span><span class=\"EOP Selected SCXW187329606 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"758\" height=\"647\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-1.png\" class=\"bbg-single-image__image attachment-full\" alt=\"Diversified Duration and Credit Factor Exposure has Highest Sharpe\" title=\"Diversified Duration and Credit Factor Exposure has Highest Sharpe\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-1.png 758w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-1-552x471.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-1-127x108.png 127w\" sizes=\"auto, (max-width: 758px) 100vw, 758px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"none\">Credit adds carry and combining it with duration factor historically improved the risk-return trade-off versus holding either factor alone. Consistent with this, <\/span><a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/markets\/behind-the-benchmark-dissecting-active-bond-fund-performance\/\"><span data-contrast=\"none\">our recent study<\/span><\/a><span data-contrast=\"none\"> found that active managers persistently hold more credit exposure than their stated benchmarks, with much of their apparent outperformance explained by this systematic tilt.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">The Bloomberg U.S. Aggregate Index has estimated factor exposures of 0.56 to the duration and 0.34 to the spread factor, while the fixed income-only optimum carries materially more spread exposure. <\/span><span data-contrast=\"auto\">But that changes once equities are added to the portfolio.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2><span class=\"TextRun SCXW255086409 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\" data-ccp-parastyle-defn=\"{&quot;ObjectId&quot;:&quot;be1baac0-2529-51c7-ba60-816a7f415f40|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1&quot;,201340122,&quot;2&quot;,134234082,&quot;true&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1&quot;,335572020,&quot;1&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,335559740,&quot;240&quot;,201341983,&quot;0&quot;,335559739,&quot;120&quot;,335551550,&quot;6&quot;,335551620,&quot;6&quot;,134245417,&quot;false&quot;,469777929,&quot;Systematic Strategies Sub-Header 1 Char&quot;,469778324,&quot;Normal&quot;&#093;}\" data-ccp-parastyle-linked-defn=\"{&quot;ObjectId&quot;:&quot;d6ef1ad6-057d-5b89-802c-47fcb5d9b06d|1&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:&#091;201342446,&quot;0&quot;,201342447,&quot;5&quot;,201342448,&quot;3&quot;,201342449,&quot;0&quot;,469777841,&quot;Aptos Display&quot;,469777842,&quot;Calibri&quot;,469777843,&quot;\u7b49\u7ebf&quot;,469777844,&quot;Aptos Display&quot;,201341986,&quot;0&quot;,469769226,&quot;Aptos Display,Calibri,\u7b49\u7ebf&quot;,268442635,&quot;28&quot;,469775450,&quot;Systematic Strategies Sub-Header 1 Char&quot;,201340122,&quot;1&quot;,134233614,&quot;true&quot;,469778129,&quot;SystematicStrategiesSub-Header1Char&quot;,335572020,&quot;1&quot;,134231262,&quot;true&quot;,335551500,&quot;10498160&quot;,335551547,&quot;1033&quot;,469777929,&quot;Systematic Strategies Sub-Header 1&quot;,469778324,&quot;Default Paragraph Font&quot;&#093;}\">Constructing <\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">an <\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">o<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ptimal<\/span> <span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">m<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ulti-<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">a<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">sset<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">\u00a0<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">p<\/span><span class=\"NormalTextRun SCXW255086409 BCX0\" data-ccp-parastyle=\"Systematic Strategies Sub-Header 1\">ortfolio<\/span><\/span><span class=\"EOP Selected SCXW255086409 BCX0\" data-ccp-props=\"{&quot;134245417&quot;:false,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:120,&quot;335559740&quot;:240}\">\u00a0<\/span><\/h2>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span class=\"TextRun SCXW50084701 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW50084701 BCX0\">The <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">optimal<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> portfolio changes<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> when that bond sleeve is placed <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">alongside<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> equities. In a 60\/40 portfolio, <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">the historical minimum-volatility and maximum-Sharpe solutions both moved to 100% <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">duration<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> factor<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> within fixed income<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">, which is <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">materially<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> different from the 30\/70 and 40\/60 mix of <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">duration<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> and credit presented in <\/span><span class=\"NormalTextRun SCXW50084701 BCX0\">previous<\/span><span class=\"NormalTextRun SCXW50084701 BCX0\"> section.<\/span><\/span><span class=\"EOP Selected SCXW50084701 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"760\" height=\"622\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-2.png\" class=\"bbg-single-image__image attachment-full\" alt=\"Duration Factor Dominated the Fixed Income Sleeve of 60\/40 Portfolio in Full Sample\" title=\"Duration Factor Dominated the Fixed Income Sleeve of 60\/40 Portfolio in Full Sample\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-2.png 760w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-2-552x452.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-2-132x108.png 132w\" sizes=\"auto, (max-width: 760px) 100vw, 760px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"auto\">Over the full sample period, credit spreads and equity <\/span><span data-contrast=\"none\">are both exposed to growth, corporate cash flows and risk appetite. Therefore, they are positively correlated. Duration factor returns, on the other hand, can behave differently when weaker growth brings lower interest rates.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Once equities account for a large share of portfolio risk, another unit of spread exposure may add less diversification than another unit of duration factor exposure.\u00a0<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">The result is not unique to a 60\/40 equity\/fixed income portfolio. As the equity allocation increases, the optimal fixed income sleeve progressively rotates from credit toward duration.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"757\" height=\"675\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-3.png\" class=\"bbg-single-image__image attachment-full\" alt=\"Higher Equity Allocations Shift Fixed Income Towards Duration Factor\" title=\"Higher Equity Allocations Shift Fixed Income Towards Duration Factor\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-3.png 757w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-3-552x492.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-3-121x108.png 121w\" sizes=\"auto, (max-width: 757px) 100vw, 757px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"none\">At low equity weights, fixed income carries more of the portfolio\u2019s return objective, making credit\u2019s spread premium valuable. As equity exposure rises, the portfolio already contains substantial exposure to growth, increasing the relative value of duration factor as a diversifier.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">This illustrates why asset allocation and implementation cannot always be considered separately<\/span><span data-contrast=\"none\">. <\/span><span data-contrast=\"none\">A top-down equity target combined with a bond portfolio optimized against a separate benchmark can produce a factor mix that does not match the fund\u2019s overall intended risk. Under a total-portfolio framework, the equity allocation and duration-credit mix are often considered together.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">This analysis uses mean-variance efficiency as a measure of portfolio success. In practice, however, the optimal portfolio under a TPA can also reflect fund-specific objectives and constraints. Liabilities are an important example: their cashflow and interest-rate characteristics can increase the value of income, liquidity and duration hedging, materially changing the role of fixed income in the portfolio.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2><span class=\"TextRun SCXW166069066 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW166069066 BCX0\">How does the <\/span><span class=\"NormalTextRun SCXW166069066 BCX0\">optimal<\/span><span class=\"NormalTextRun SCXW166069066 BCX0\"> mix change across market regimes?<\/span><\/span><span class=\"EOP CommentStart CommentHighlightPipeRest PointComment CommentHighlightRest SCXW166069066 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/h2>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"none\">The full-sample results point strongly toward duration factor as equity exposure increases. But this conclusion depends on the relationship between stocks and interest rates, <\/span><span data-contrast=\"auto\">which has changed over time.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Equity-credit correlation has historically remained persistently positive, while the relationship between equities and duration factor has changed sign multiple times over the past few decades.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">During growth-led slowdowns, central banks often cut rates, allowing duration factor to gain as equities fall. During inflation shocks, rates can rise as equities decline, weakening or reversing that hedge.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:100%\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"768\" height=\"635\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-4.png\" class=\"bbg-single-image__image attachment-full\" alt=\"The Equity-Bond Relationship Changes Across Regimes\" title=\"The Equity-Bond Relationship Changes Across Regimes\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-4.png 768w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-4-552x456.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/41\/fixed-income-image-4-131x108.png 131w\" sizes=\"auto, (max-width: 768px) 100vw, 768px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"none\">We tested the maximum-Sharpe mix in different periods. Duration factor was the primary driver of the efficient fixed income mix during 2002-2021, when the equity-duration factor correlation was predominantly negative. Credit became more relevant after 2022 as inflation pushed the equity-duration factor relationship back into positive territory.\u00a0<\/span><span data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">To stress-test the result, we extended the analysis using estimated factor returns for the 1973-81 stagflation period. In that environment, credit dominated both the fixed income only and total-portfolio efficient frontiers.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">As the dominant shock shifts from growth to inflation, the diversification value of duration factor can change. The sub-period analysis show that the appropriate role of fixed income depends both on the rest of the portfolio and on the macroeconomic risks the portfolio faces.<\/span><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2><span class=\"TextRun SCXW152211421 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"auto\"><span class=\"NormalTextRun SCXW152211421 BCX0\">What does a total portfolio approach mean for fixed income?<\/span><\/span><span class=\"EOP CommentStart CommentHighlightPipeRest PointComment CommentHighlightRest SCXW152211421 BCX0\" data-ccp-props=\"{}\">\u00a0<\/span><\/h2>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"none\">The 60\/40 label says relatively little about the risks beneath the \u201c40\u201d. Fixed income can provide income and return, hedge equity risk, or introduce another source of growth exposure depending on its duration and credit factor mix.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">The appropriate mix therefore cannot be determined by optimizing fixed income in isolation. It depends on the composition of the total portfolio and on the macroeconomic risk investors are seeking to manage. A credit-heavy benchmark embeds materially different economic exposures from a Treasury-heavy benchmark. Under a Total Portfolio Approach, choosing the fixed income benchmark is part of the asset-allocation decision, not simply an implementation choice.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2><span class=\"TextRun SCXW60199746 BCX0\" lang=\"EN-GB\" xml:lang=\"EN-GB\" data-contrast=\"none\"><span class=\"NormalTextRun SCXW60199746 BCX0\" data-ccp-parastyle=\"heading 2\">Precision and customization in fixed income indexing<\/span><\/span><span class=\"EOP Selected CommentStart SCXW60199746 BCX0\" data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:299,&quot;335559739&quot;:299}\">\u00a0<\/span><\/h2>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><span data-contrast=\"auto\">Viewing fixed income through a total portfolio lens also puts greater emphasis on selecting benchmark exposures that align with broader portfolio objectives.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">As portfolio construction becomes more targeted, defining benchmark exposures with precision is becoming increasingly important. Bloomberg Fixed Income Indices give investors tools to tailor exposures quickly and accurately. Supported by integrated data and analytics on the Bloomberg Terminal, users can combine asset classes, apply constraints and refine methodologies in line with specific investment objectives.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.bloomberg.com\/professional\/products\/indices\/fixed-income\/\"><span data-contrast=\"auto\">Explore Bloomberg Fixed Income Indices<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/a><\/p>\n\n<\/div>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-6ae5bf5791631]::before {\n\t\t\t\tbackground-color: #f4f4f9;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--f4f4f9 text--black 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