Why Investors Are Turning To Active Fixed Income Strategies

Investors are no longer content with passive,“set-it-and-forget-it” bond funds that mirror broad indices. Instead, they're seeking strategies where skilled teams actively hunt for mispricings in corporate bonds-those moments when a bond's price doesn't reflect its true value.

And let's be clear: this isn't just for Wall Street insiders. Savvy individual investors are increasingly drawn to this approach, lured by the promise of better returns and smarter risk management.

So, what's driving this shift?

First, let's talk about the elephant in the room: inflation. After years of low interest rates and central bank interventions, inflation roared back, throwing markets into disarray.

For many, it became clear that traditional“safe” investments, like holding cash, weren't so safe after all. Inflation erodes the value of cash over time, turning it into a guaranteed loser in a high-inflation environment.

Meanwhile, government bonds, another so-called safe haven, have seen their prices tumble as yields rose. Investors needed something smarter-something with the potential to deliver returns above inflation without diving into the chaos of equity markets. Enter active fixed income.

Active bond strategies take advantage of market inefficiencies, especially in the corporate bond space.

Here's where it gets interesting: the corporate bond market, despite its size, is far less transparent and efficient than the stock market. Bonds don't trade on centralized exchanges like stocks; instead, they trade over the counter, creating opportunities for skilled managers to identify mispriced gems. Think of it as finding a luxury item on sale because someone misjudged its worth. It's not easy, but when done well, it's highly rewarding.

The appeal doesn't stop there. These strategies also focus on high-quality bonds-think investment-grade debt issued by financially sound companies.

This is about balancing attractive yields with consistent credit quality. And here's the kicker: active fixed income funds typically aim to deliver returns that exceed those of cash or savings accounts while maintaining a relatively conservative risk profile. In an era of uncertainty, this combination is hard to resist.

Another reason for the growing interest in active fixed income is the rise of interest rate-neutral strategies.

Bond investors have long grappled with the impact of fluctuating interest rates on their portfolios. When rates rise, bond prices typically fall, and vice versa. But an interest rate-neutral approach sidesteps this guessing game, focusing instead on generating returns through credit selection and other factors. This predictability appeals to investors who are tired of market swings and just want a strategy they can rely on.

Of course, this shift isn't happening in isolation. It's part of a broader trend toward greater investor sophistication.

People are becoming more financially literate, thanks in part to accessible information and tech. They're asking better questions, demanding better products, and expecting better outcomes.

The days of blindly sticking to traditional asset classes or outdated strategies are over. Active fixed income fits perfectly into this new narrative: a strategy that's smart, proactive, and adaptable to modern challenges.

The allure of active fixed income is undeniable. It's a strategy that appeals to those who value control, precision, and results over blind faith in market averages.

As more investors wake up to its benefits, don't be surprised if this“quiet revolution” becomes a roar.

Nigel Green
is
deVere
CEO and Founder

Also published on Medium .

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