The big picture
Nowadays, investors can benefit from actively managed core and core plus bond strategies’ expanded investment opportunity set.
Why it matters
A passive core bond allocation may provide index exposure, but it can also deliver greater U.S. Treasury (UST) concentration, reduced flexibility and fewer opportunities to capture excess return through sector allocation, yield-curve positioning, duration management and security selection.
Key points
- An expanded opportunity set: Active fixed income managers can pursue return opportunities in spread sectors and areas such as high yield, bank loans, structured credit and non-U.S. debt — exposures that are absent or only modestly represented in the benchmark index.
- A more exploitable benchmark: The Bloomberg U.S. Aggregate Bond Index (Agg) represents approximately one-half of the investable U.S. fixed income market. As of December 31, 2025, the index maintained a 45.9% weight to USTs, which suggests that investors have greater exposure to lower-yielding government debt and less exposure to higher-yielding spread sectors.
- Additional levers: Active managers have the ability to adjust portfolio duration, yield-curve positioning and sector weights in response to evolving economic cycles and monetary policy regimes, while passive investors remain tethered to benchmark-like characteristics.
- A favorable backdrop: Rolling-return and peer-ranking analysis suggests that the post-2009 environment has been more favorable for active core and core plus strategies than the pre-2008 financial crisis period.
- Security selection is key: Within corporates and mortgages, active managers are able to seek out: relative value opportunities, earlier exits in “fallen angels” and opportunities to mitigate downgrade risk and improve collateral/pool selection in ways index-tracking vehicles cannot.
- A role for passive: We view the use of passive strategies primarily as a targeted portfolio tool, such as to provide UST ballast or low-cost rebalancing. Over full market cycles, the thoughtful selection of active core and core plus managers may offer investors the opportunity to outperform.
Go deeper
This paper highlights the investment merits and opportunities of active fixed income, while also acknowledging the role passive strategies may play within an investment portfolio.
