Relative Value strategies could serve as a fixed income alternative

Sources: © 2021 – Morningstar Direct, All Rights Reserved1 and Wells Fargo Investment Institute. Monthly data from January 1, 1990 to September 30, 2021. Alpha is a measure of excess return and is relative to the Bloomberg U.S. Aggregate Bond Index. For illustrative purposes only. Index returns do not represent investment performance or the results of actual trading. Index returns reflect general market results, assume the reinvestment of dividends and other distributions, and do not reflect deduction for fees, expenses or taxes applicable to an actual investment. Unlike most asset class Indexes, HFR Index returns are net of all fees. Because the HFR Indexes are calculated based on information that is voluntarily provided actual returns may be lower than those reported. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. HFRI Relative Value Index maintains positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Managers employ a variety of fundamental and quantitative techniques to establish investment theses, and security types range broadly across equity, fixed income, derivative, or other security types. Bloomberg U.S. Aggregate Bond Index is composed of the Bloomberg U.S. Government/Credit Index and the Bloomberg U.S. Mortgage-Backed Securities Index and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities.

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Key Takeaways

  • We expect the outperformance of the Relative Value alpha strategy versus the Bloomberg U.S. Aggregate Bond Index to return to its long-term average of over 5%.