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Smart strategies for outperformance in fixed income

Smart strategies for outperformance in fixed income

Time to Read: 3 mins

Insight Investment outlines seven strategies skilled active managers can use when seeking to generate excess returns relative to benchmarks.


The strategies are:

  1. Duration and yield curve: Positioning based on yield outlook or yield curve shape
  2. Security selection: Identifying undervalued securities with strong fundamentals
  3. New-issue premia: Capitalising on new debt being issued at above market yields
  4. Exploiting market fragmentation: Seeking opportunities that stem from the fragmented nature of bond issuance
  5. Sector strategy: Seeking out those sectors that offer the best opportunity or avoiding those at risk
  6. Beta management: Adjusting credit risk exposures to take advantage of expected trends in credit markets
  7. Relative value: Exploiting value differences across markets
     


Investors in fixed income should be aware of the limitations of traditional fixed income indices when following a passive investment strategy.

Unlike equity indices, which favour the largest and most successful companies, fixed income indices are skewed towards entities with the most debt. The dominance of BBB-rated corporates in investment grade indices further compounds the challenge, increasing the risk of downgrades during economic stress which may force passive investors to sell at inopportune times.

When combined with fees and transaction costs, we believe these factors leave many passive strategies doomed to structurally underperform.

Additionally, volatility can be a source of opportunity for active managers – enabling selective risk-taking and timely rotation into certain assets.

Of course, not all investors seek return maximisation – some just want safe, reliable cashflows. We believe active managers can improve returns through ‘winning by not losing’:

  • Avoiding defaults and credit deterioration
  • Focusing on credits with strong or improving fundamentals
  • Building diversified portfolios
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FOR INSTITUTIONAL, PROFESSIONAL, QUALIFIED INVESTORS AND QUALIFIED CLIENTS ONLY.

The information contained herein reflects general views and is provided for informational purposes only. This material is not intended as investment advice nor is it a recommendation to adopt any investment strategy.

Opinions and views expressed are subject to change without notice.

Past performance is no guarantee of future results. 

Issuing entities

This material is only for distribution in those countries and to those recipients listed, subject to the noted conditions and limitations: • United States: by BNY Mellon Securities Corporation (BNYSC), 240 Greenwich Street, New York, NY 10286. BNYSC, a registered broker-dealer and FINRA member, has entered into agreements to offer securities in the U.S. on behalf of certain BNY Investments firms. • Europe (excluding Switzerland): BNY Mellon Fund Management (Luxembourg) S.A., 2-4 Rue EugèneRuppertL-2453 Luxembourg. • UK, Africa and Latin America (ex-Brazil): BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. • South Africa: BNY Mellon Investment Management EMEA Limited is an authorised financial services provider. • Switzerland: BNY Mellon Investments Switzerland GmbH, Bärengasse 29, CH-8001 Zürich, Switzerland. • Middle East: DIFC branch of The Bank of New York Mellon. Regulated by the Dubai Financial Services Authority. • South East Asia and South Asia: BNY Mellon Investment Management Singapore Pte. Limited Co. Reg. 201230427E. Regulated by the Monetary Authority of Singapore. • Hong Kong: BNY Mellon Investment Management Hong Kong Limited. Regulated by the Hong Kong Securities and Futures Commission. • Japan: BNY Mellon Investment Management Japan Limited. BNY Mellon Investment Management Japan Limited is a Financial Instruments Business Operator with license no 406 (Kinsho) at the Commissioner of Kanto Local Finance Bureau and is a Member of the Investment Trusts Association, Japan and Japan Investment Advisers Association and Type II Financial Instruments Firms Association. • Brazil: ARX Investimentos Ltda., Av. Borges de Medeiros, 633, 4th floor, Rio de Janeiro, RJ, Brazil, CEP 22430-041. Authorized and regulated by the Brazilian Securities and Exchange Commission (CVM). • Canada: BNY Mellon Asset Management Canada Ltd. is registered in all provinces and territories of Canada as a Portfolio Manager and Exempt Market Dealer, and as a Commodity Trading Manager in Ontario. All issuing entities are subsidiaries of The Bank of New York Mellon Corporation.

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE |

©2026 THE BANK OF NEW YORK MELLON CORPORATION

MARK-898981-2026-03-10


GU-818 - 18 March 2027

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