, Columnist
Investors Deserve a Peek at Bond Managers’ Tricks
Grading with benchmarks that better reflect investing styles would be a good start.
Razzle-dazzle ’em.
Photographer: London Express/Hulton Archive/Getty Images
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Active bond managers have dazzled investors by outpacing the bond market in recent years. But it’s a simple sleight of hand, and the big reveal is coming.
The trick is that bond managers have been quietly loading up on low-quality bonds. They pay a higher yield than top-quality ones to compensate for their greater risk of default — in technical parlance, a credit premium.