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Fixed income factor strategies are a less conventional way of thinking of factors in a portfolio. Similar to equities, traditional fixed income benchmarks are concentrated in nature and tend to include the most indebted issuers. Factor investing could come to the rescue and alter the inherent biases in the traditional benchmarks. This chapter presents examples of factor investing styles for government and corporate bonds. There is no prescribed route of doing this other than going back to the basic principles of bond investing and what drives the risk and returns in the asset class. A common set of factor styles in fixed income can serve different purposes and can be used as a tool to understand trends and identify investment opportunities. Currently, fixed income factors are at an infant stage, but are expected to become increasingly accessible to investors in the coming years. |
