The transition has been slower in fixed-income. Indexes are made of tens of thousands of over-the-counter bonds, many of which are so illiquid they won’t change hands for weeks at a time. It’s hard to buy the entire market the way equity investors can buy every stock, making it more difficult for an index fund to track the performance of its benchmark closely.
The gap between passive and active net flows reached a record US$1.04 trillion in 2022, almost triple any other year, according to data from EPFR, which tracks fund flows and asset allocation. Passive funds lured US$279 billion in new cash, while active funds bled US$757 billion. That means many of the decisions he makes, like which bonds to buy when trying to replicate his funds’ underlying benchmarks, can have big consequences for the market Article content
“Everyone watches their flows,” Hu said. “They could easily move the market. You have to anticipate their moves.” A native of Ohio, Barrickman graduated from Ohio Northern University before earning his MBA from Lehigh University in Pennsylvania. In 1999, he joined Vanguard as a municipal bond trader, before working as a bond index trader.Article content
Ironically, the increasing penetration of passive investing in the bond market has come as active managers have had some of their best years in recent memory relative to their benchmarks.
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