by Benjamin Christensen and David Lebovitz / JP Morgan Asset Management
Danger for core fixed income investors: Why using the US Agg for your fixed income benchmark is a terrible, terrible idea (From JP Morgan).
"Investors in passive strategies designed to track the Bloomberg Barclays US Aggregate Bond Index (the Agg) have little recourse in the face of ongoing bond market trends and their impact on the Agg as a portfolio stabilizer.
With rates still low but normalizing, investors may want to reassess how closely to tie their fixed income assets to the rules-based Agg—and consider how they can loosen the constraints.
We highlight some of the limitations of the Agg and the factors that have altered its risk-return profile, pointing to the potential implications for passive bond investors. We suggest what concerned investors can do to help ensure that objectives for their fixed income allocations continue to be met."