Hidden Complexity: Challenges of Managing to the Agg
Authors & Contributors
The Bloomberg US Aggregate Bond Index fulfills a crucial role for fixed income investors, providing a basis for portfolio exposures including performance and risk measurement.
Its prevalence among investors masks the complexity of replicating its exposures and performance, proving that passive investing requires an active mindset.Â
Mellon employs a sophisticated replication methodology known as stratified sampling to address this. Stratified sampling recognizes that the risks in fixed income are predominantly systematic and yet potentially flexible enough to accommodate the idiosyncratic risks present in certain sectors such as corporate bonds and MBS.
We believe our approach to index management enhances our ability to track the return of the Agg while managing the risks associated with fixed income. Our experienced team consistently applies a methodology that aims to provide value for fixed income investors.
