Systematic fixed-income investing is an active approach that aims to beat market returns by identifying and harnessing the factors that drive bond performance. Factors such as value and momentum are historically recognized to have predictive power, but advanced systematic approaches seek to identify additional performance drivers to integrate into their models. By looking at factors collectively, investors can gain a more complete view of an opportunity.
In our example (Display), a multifactor model determined a total score for a bond based on its underlying factor scores. At the start of the year, the bond scored high on value and quality but low on other factors, including proprietary ones. This reduced the total multifactor score, helping avoid a premature purchase.
By the end of February, several of the factors’ scores had improved significantly, leading to a higher total score and a buy signal. In systematic investing, there’s strength in numbers.
