As demand for systematic fixed income is heating up, two investment firms have announced a collaboration that they hope will sate investors’ appetite with new active debt investment strategies.
Asset manager State Street Global Advisors is partnering with Barclays’ research business to use data from the firm’s systematic strategy indices to build and manage active products in systematic fixed income, the two announced Thursday.
Although systematic equity strategies are a mature category, the approach is relatively new to fixed income. “In the equity space, systematic strategies have been prevalent for a long time because academics had access to data, and data was a commodity,” said Lev Dynkin, founder and global head of Barclays’ quantitative portfolio strategy group.
Unlike stocks, fixed income trades over-the-counter, with electronic platforms handling only part of the business. As a result of this and other differences between stocks and bonds, accessing and harvesting data in fixed income markets is more complex.
But that’s changing quickly. “Liquidity access and efficiency in the fixed income markets have provided us a more sustainable strategy,” said Matthew Steinaway, fixed income, cash, and currency chief investment officer at State Street Global Advisors.
As fixed income markets become more efficient, the viability of implementing systematic, quant-style debt strategies has grown. According to Dynkin, fixed income investors can use the same factors that equity managers do, including value, momentum, and sentiment, as well as a whole variety of newer thematic signals. “It’s an approach where securities are evaluated and ranked on some algorithmic rules-based factors,” he added. Within systematic fixed income, alpha is “driven by intensive data analysis,” which can uncover asset mispricing, according to SSGA.
Institutional investors also increasingly say they’re adding fixed income, particularly these strategies, to their portfolios.
According to a survey of 700 investors by State Street, 91 percent of institutions had an interest in using systematic fixed income strategies over the next 12 months. The largest investors — those managing more than $10 billion — were the most interested in implementing these strategies, particularly within the investment grade and high yield corporate credit segments, the survey showed.
Other firms are picking up on this interest. But Steinaway said that SSGA will be able to stand apart thanks to its openness to sharing data.
“If I reflect on other competitors in the space, an important difference is the transparency we’re offering,” he said, adding that clients will have access to information on the factors used to inform investment decisions. “This is not intended to be black box fixed income.”
According to Steinaway, SSGA will likely focus first on implementing systematic fixed income strategies in the corporate credit sector, with others soon to follow.
“The acceptance of systematic fixed income strategies is just beginning,” Dynkin said.
