Characteristics
Bianco Research Fixed Income Total Return Index
A fixed-income index utilizing market-efficient "fund of funds" strategy. The Bianco Research Fixed Income Total Return Index seeks to outperform a comparable baseline neutral portfolio of fixed income securities.
Bloomberg Ticker: BTRINDX Index
Inception Date: 9/1/23
Index Methodology: BTRINDX Methodology
Overview
Index Strategy
Leveraging over two decades of macro and fixed income research, the fund of funds strategy creates a cost-effective mechanism for expressing fixed income exposures. The index is composed of fixed income ETFs that are specifically selected and weighted to achieve specified factor exposures. The fixed income exposure includes government bonds, corporate bonds, mortgage-backed securities, high yield, inflation-protected, municipal, international, and emerging markets-related ETFs.
Portfolio Construction
The portfolio strategy is based on qualitative and quantitative inputs including economic data and interpretations of government policy. The Index is managed both by a top-down fund level approach and by looking through to underlying holding characteristics. Asset allocation guardrails include 50% - 200% allocation relative to the benchmark for credit, duration, and structure/mortgage weight.
A high conviction exposure to more speculative or diversifying positions is constrained to 0% - 20%.
In extraordinary market environments, the Investment Committee can select index constituents that are entirely composed of Treasury components.
Understanding Total Return Factors
With rates near multi-decade highs, we have entered into a new bond bear market that started in August 2020. This calls for new strategies and a re-imagination of the implementation of fixed income portfolios.
An established set of factors can be used managing this fund. These factors have since been studied and backtested and have been shown to generate statistically significant alpha in the past.
BILL GROSS - CONSISTENT ALPHA GENERATION THROUGH STRUCTURE (2005)
RICHARD DEWEY & AARON BROWN - BILL GROSS' ALPHA: THE KING VERSUS THE ORACLE (2019)
These five factors have been established as necessary components contributing to alpha in a total return portfolio if utilized and adjusted correctly.
We argue for a focus on total return through these five factors:
Duration
A portfolio's duration is its sensitivity to changes in interest rates. This is driven by expected inflation.
Curve
Relative positioning along the yield curve. This factor is driven by the economic outlook and Fed policy.
Credit
Credit quality exposure is an understanding and evaluation of the future of corporate America.
Volatility
This factor is mainly derived from structured credit & MBS. A portfolio’s structure is driven by liquidity and volatility conditions.
Conviction
These trades are often opportunistic and can include high yield preferred stocks, TIPS, & international fixed income (based on macroeconomic factors)