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How to Invest in the Bond Market Now -- Barron's -2-

18 Mar 2017 10:00 am

Many investors are drawn to passive vehicles because of the cost. By staying duration-neutral, we have the same interest-rate volatility as our benchmark. The Universal index has over 15,000 securities; the Aggregate index, over 10,000. Core Plus owns nearly 1,200; the Aggregate fund, over 1,000. We can be very specific about what we choose to own. There are a lot of inefficiencies in the bond market. Unlike stock indexes, the bond indexes are huge. There are over 100 JPMorgan bonds outstanding. We have the luxury of picking five or six we find attractive.

And bond investors have different objectives. Individual investors don't like to buy high-coupon issues that trade at big premiums, for example. Quantitative easing has created inefficiencies. You've seen a lot of flows into high-yield corporate, and investors who've never been there before, desperate for yield -- tourists, if you will. It will act more equity-like in a volatile market. When you get selling pressure, there will be more volatility than people expect.

We have a track record that demonstrates we can add value over the benchmark over time. We do what we like to call microsurgery -- small bets hitting a lot of bonds. Compound that little bit over time, and it is very significant. Our expense ratio is 30 basis points on the institutional shares, which are readily available to investors at low minimums.

Thank you.

Email: editors@barrons.com

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March 18, 2017 06:00 ET (10:00 GMT)

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