Active Bond Management Strategy

Active Bond Portfolio Management Strategy

Referring to Wikipedia.org, Active portfolio management strategy is defined as a type of portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index. The portfolio manager will actively manage a fund's portfolio relying on the analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell.

Investopedia stated that investors who believe in active management do not follow the efficient market hypothesis. They believe it is possible to gain profit from the stock market through any number of strategies that aim to identify mispriced securities.

Basically, active management strategies attempt to beat the market. The goal of active management is maximizing total return. However, the higher opportunity for returns obviously will increase the risk. The basic principle of all active strategies is that the investor is willing to make bets on the future rather than settle with what a passive strategy can offer.

The active portfolio manager will exploits market inefficiencies by either purchasing securities such as stock that is undervalued or by short selling securities that are overvalued or both combination. After all, it’s all depending on the goals of the specific investment portfolio, hedge fund or mutual fund.

The reduction of risk may be the goal of creating an investment return greater than the benchmark. Active portfolio managers may use a variety of factors and strategies to construct their portfolio. Mostly the success or failure of an investment is depending on the investor’s ability to accurately forecast future interest rates.

There are four dimensions on active strategy attributes of several potential sources of alpha for the active bond portfolio manager. It is depending on some structural barrier that prevents the bond market from being fully...