Clearly, bonds are no longer just for grandma. As equities market returns have careened up and down in recent years with investors pouring ever more cash into the perceived safety of fixed-income investments, innovations designed to squeeze out a few additional basis points of income have come on fast and furious in the index business. A wide array of alternatively weighted, international and higher-yielding indexes have proliferated. In this issue, we explore some of these innovations as well as calls for sanity.
We kick things off with a well-argued piece from Charles Thomas and Donald Bennyhoff of Vanguard, who make the case for the traditional cap-weighted, broad market approach to bond index investment over alternatively weighted approaches.
Shane Shepherd of Research Affiliates begs to differ, and explains how Research Affiliates has constructed its own fundamentally weighted global bond index. Terry Benzschawel and the team at Citigroup offer their own take on bond indexes, describing their probability-of-default metric and how it can be used in fixed-income construction, while Stephen Laipply and Christopher Woida of BlackRock discuss some of the trade-offs portfolio managers must make when managing index-based investment products.
Next up, Summit Strategies Group’s Rich Wiggins thinks you need to take another look at the Barclays Capital U.S. Aggregate Index, and David Krein and John Prestbo of Dow Jones Indexes show how the growing demand for fixed-income investments has created a unique opportunity for index providers. S&P’s David Blitzer offers his own perspective on new index strategies and how they’re blurring the lines between asset classes, while Brian Upbin from Barclays Capital discusses some fixed-income benchmark alternatives.
Heather Bell closes out the issue with some suggestions for solving that big bond dilemma, the Greek debt crisis. Hint: Yogurt is involved.
Here’s to 2012 yielding you health, happiness and some decent returns.
Jim Wiandt
Editor
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2012
