Financial advisors thinking about dipping a toe into active management may want to start with funds that try to outperform the Barclays Agg, he said. The index hovers around 35 percent of the global fixed-income universe, he noted. Non-U.S. fixed income can also benefit from active management.
One sector he pointed to is emerging-markets local currency. Year to date, several countries in the sector have seen “unbelievable underperformance,” he said, including Argentina, Turkey and Brazil. An active manager who has perspective on local markets and can express that in clients’ portfolios can present big opportunities, he said.
Western Asset Management’s core plus strategy has beaten the Barclays U.S. Agg handily over the past half-dozen years. According to Hulsey, it turned in excess returns in 2012 (420 basis points), 2013 (100 bp), 2014 (170 bp), 2015 (80 bp), 2016 (210 bp) and 2017 (300 bp).
Many investors view fixed income as “the anchor to windward,” said Hulsey, that can produce income to help with liability payments and retirement income. “The last thing people want is to see their fixed income terribly underperform on both an absolute and relative basis,” he said. “The active manager absolutely has controls in terms of being able to produce excess returns in a variety of environments.”