The US Agg Has Changed: Implications for passive bond allocations
Investors look to core bonds as a reliable source of income and a stabilizer of portfolio returns. Many gain fixed income exposure (in whole or in part) by investing in passive strategies, such as those designed to track the Bloomberg Barclays US Aggregate Bond Index. Granted, over a bull market for bonds that has lasted more than 35 years, the Agg’s performance hasn’t raised many red flags, but we believe reasons for caution are compounding.
We highlight some of the limitations of the Agg and the factors that have altered its risk-return profile, pointing to the potential implications for passive bond investors. We suggest what concerned investors can do to help ensure that objectives for their fixed income allocations continue to be met.