Bonds Are Different

The case for active management in fixed income investing is strong.

In the active-versus-passive debate, investment flows suggest passive has been winning. And many, if not most, investors seem to believe the rationale for passive applies equally well to fixed income as equities. But bonds are different. And we believe the case for active fixed income management has only been strengthened by the uncertainty and volatility that President Donald Trump’s policies may engender.

The active-versus-passive debate is an old one, of course, with reasoned arguments on both sides. On a visceral level, in recent years many investors paid active equity management fees only to get below-benchmark returns.

Basic math lies at the core of the logical argument for passive: In sum, the performance of all investors aggregates to the performance of the markets. For every winner, there must be a loser subsi