Quants poised to take over the world of bonds: Invesco

Quants poised to take over the world of bonds: Invesco
With the work-from-home era fueling a boom in electronic trading, the majority of investors in a $31 trillion community say they now deploy factor strategies in bond portfolios.
SEP 27, 2021
By  Bloomberg

The quant revolution in fixed income is here at long last, if the latest Invesco Ltd. poll is anything to go by. 

With the work-from-home era fueling a boom in electronic trading, the majority of investors in a $31 trillion community say they now deploy factor strategies in bond portfolios. 

It’s the latest evidence the systematic crowd are running wild in a market long seen as hostile to their allocation methods. The strategies have been put into practice by 55% of respondents compared with 40% last year

Conviction has been rising in recent years that slicing bonds by factors like value and price momentum provides a way to outperform traditional investing styles. After a decade-long debt rally drove yields to almost nothing, Wall Street is more receptive to the pitch than ever. 

In the exchange-traded fund market, smart-beta bond products — those that use factors to guide exposure — have drawn $13.5 billion this year, according to data compiled by Bloomberg Intelligence. That’s already a record haul which has lifted total assets to $57 billion. 

“The yield spread has been compressed, and when looking at the market information it is difficult to understand what is meaningful,” the Invesco survey cites an unnamed North American institutional investor as saying. “Incorporating factors within our fixed income strategies has helped us find a way to navigate through this period.”

The study, dated as of March, surveyed 241 institutional and wholesale investors that use factors in some way. It found that the most commonly used fixed-income varieties include value, quality and carry. Many money managers also use macro styles such as duration, liquidity and inflation. 

Other highlights include:

  • In the equity world, Invesco found that the long-embattled value strategy has regained favor, consistent with market trends since economies began to recover from the pandemic late last year.
  • 87% say they allocate to the factor — which likes shares that are cheap compared to price fundamentals — compared with 82% last year. 42% have boosted exposure to the investing style over the past 12 months and 46% say they kept it unchanged.
  • 48% say they use factors to help incorporate environmental, social and governance concerns. Among them, 72% apply ESG screens before using their factor model while 57% incorporate ESG variables into their models.
  • 41% say ESG is completely independent of investment factors, 29% say it is indirectly incorporated in other factors like quality while 30% say it’s a factor on its own.
  • In the year through March, 50% say factors performed in line with traditional active strategies while 34% say they underperformed. Compared to market-weighted strategies, the answer was mixed, with 38% saying factors did worse.
  • Over the next 12 months, 57% say they plan to maintain factor allocations in their overall portfolios, 35% see increases and 8% see cuts.

Latest News

Five-person Raymond James team jumps to Janney in Maryland
Five-person Raymond James team jumps to Janney in Maryland

The group led by a 37-year industry veteran brings $470 million in assets to the Philadelphia-based broker dealer.

$20B Merit looks to next phase as Constellation takes minority stake
$20B Merit looks to next phase as Constellation takes minority stake

The Atlanta, Georgia-based national wealth firm revealed its new PE partner as prior backers Wealth Partners Capital Group and HGGC’s Aspire Holdings exited their investments.

$350M father-son duo hops from Osaic to Equitable Advisors
$350M father-son duo hops from Osaic to Equitable Advisors

The latest departures in Ohio mark another setback for the hybrid RIA, which is looking to "expanding its presence across all models and segments of the wealth management industry.”

Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds
Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds

The St. Louis-based real estate investment firm gives the asset management giant a valuable access point to the roughly $1 trillion net lease market.

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.