High Yield: The Drawbacks of a Passive Approach

The active versus passive debate has dominated the institutional market in recent years as passive equity strategies have witnessed unprecedented growth. The popularity of passive investing, or indexing, is now attracting fixed income investors. Investors may choose a passive strategy as a relatively inexpensive way to gain broad market exposure and generate index-like returns. While this may hold true for equities, we believe this expectation is flawed when it comes to fixed income, particularly lower-quality or less liquid credit. In this paper, we assess the historical performance and potential drawbacks of passively managed high yield bond strategies.

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