Hi, my name’s Kenny O’Toole. I’m a Senior Investment Manager in the Quantitative Index Solutions (or QIS) team at abrdn. My primary role is managing the systematic Fixed Income strategies within the team.
What do we mean by systematic Fixed Income strategies? The type of systematic investing we do at abrdn is also known as passive investing. Essentially, we aim to track the performance of the chosen index using various analytical tools and methodologies in a pragmatic, cost-effective way.
Systematic Fixed Income strategies are a reasonably new focus for clients. But we’ve been running these strategies for over 20 years. We currently manage over £15 billion across a range of Fixed Income asset classes. This includes global credit, global government bonds, global index-linked bonds, emerging market debt, UK credit and UK government bonds.
Passive investing’s certainly an accessible way for customers to invest, but building portfolios that track indices isn’t as simple as it might appear.
We manage against indices that hold thousands of securities. The index constituents change as new debt is issued, older bonds mature and corporate actions take place - so intra-day trading is often required.
In short, the knowledge, experience, systems and processes to support this require significant investment and experience. A specialist investment team is essential.
So how do we replicate benchmark returns? As experienced systematic portfolio managers, we always look to balance the cost of trading with how closely we track any index. This means we need to continuously monitor and react to changes in index constituents as they evolve through time.
The starting point is to fully understand the methodology and composition of the index chosen to be tracked.
Global corporate bond indices are a good example of this. They can hold over 16,000 bonds. Replicating the index by holding all the constituents would be difficult and expensive.
The QIS team have strategies and processes for replicating index returns while controlling costs. We do this by building a portfolio that matches key index characteristics without having to hold every single bond in the benchmark. The important thing is to match those key characteristics such as interest rate sensitivity, creditworthiness and currency exposure.
Clients have found the availability of fixed income passive portfolios to be a welcome and useful building block in their strategies to meet their risk, return and cost objectives.
You can find out more about passive fixed income investing by visiting our website at abrdn.com
The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested.
The views expressed in this video should not be construed as advice on how to construct a portfolio or whether to buy, retain or sell a particular investment.
abrdn Investment Management Limited, registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL and authorised and regulated by the Financial Conduct Authority in the UK.
