Fixed Income and Treasury

Factor Investing in Credit Markets

10 White Papers examining Factor approaches to Fixed Income

Factor investing is a tried and trusted technique for adding value in equity markets, but in credit markets the use of factor approaches is less developed.

In recent months we have seen an increase in interest in this subject, with some very good papers being published:

Savvy Investor

Why should investors consider credit factors in fixed income? (Invesco, 2017)
(For compliance reasons, this paper is available to UK and European members only)

The paper provides insight into how factor investing differs between equity and fixed income, and explores solutions to the unique challenges of implementing a factor strategy in credit portfolios.

The Low Volatility Factor in U.S. High Yield Corporate Bonds (S&P DJI, 2017)
This research by S&P Dow Jones Indices shows that the low volatility factor can be applied, not only to equity portfolios, but also to fixed income investing, providing an effective way to screen out riskier bonds.

Smart credit investing: harvesting factor premiums (Robeco)
Robeco research shows how, in a multi-asset portfolio, corporate bond factors can be used to add incremental value.

Factor Investing in the Corporate Bond Market (Financial Analysts Journal, 2017)
This article, recently published in the CFA Institute's Financial Analysts' Journal, examines the performance of size, low-risk, value, and momentum factor portfolios in the corporate bond market.

Does Carry add value to existing credit factors? (Robeco, 2017)
Is Carry a factor in its own right in credit markets? In this article, Robeco analyze the Carry factor as a potential addition to the corporate bond factor zoo.

A Factor Approach to Smart Beta Development in Fixed Income (BlackRock, 2015)
Smart beta, passively managed equity portfolios have become increasingly popular in recent years. The authors of this paper extend such thinking to fixed income.

Implementing Factor Strategies in Corporate Bonds (Robeco, 2016)
In corporate bond portfolios, factor investing strategies require special attention to be paid to liquidity issues.  This white paper from Robeco discusses how live liquidity information can be integrated into the investment process.

A Framework for Expected Returns in Credit Markets (PIMCO, 2013)
Investors in credit markets often use simple estimates of carry and roll down as indicators of returns. In this article, the authors argue that this approach only partially captures the cyclical dynamics of credit excess returns.

Yield Curve Premia (AQR Capital Management, 2017)
AQR examine return premia associated with the level, slope, and curvature of the yield curve over time and across countries from a novel perspective, by borrowing pricing factors from other asset classes.

Using momentum investing to enhance fixed income returns (Index IQ, 2016)
The authors of this paper ask whether fixed income investors should be making use of the "momentum" factor in fixed income management.

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