Fixed income - enhance indexing major vs minor mismatches

minor is stratified sampling (well, that’s how i think about it). major is slightly over/underweighting other characteristics like sectors—but NOT duration.
 
I think major mismatch underweight/overweight sectors and also adjust for duration. since it’s counted as active management.
Minor mismatch doesn’t touch the over all duration, but it can change the other factors very slightly in order to generate enough extra return to pay for the cost of indexing.
 
he asked about enhanced indexing, not active management dudes.
you can not change duration in enhanced indexing by minor risk factors….as you are just trying to beat index + admin costs.
 
KRochelli Wrote:
——————————————————-
> he asked about enhanced indexing, not active
> management dudes.
>
> you can not change duration in enhanced indexing
> by minor risk factors….as you are just trying to
> beat index + admin costs.
In enhanced indexing with minor risk factor mistmatches, the manager has discretion to tweek duration.
 
passthismofo Wrote:
——————————————————-
> KRochelli Wrote:
> ————————————————–
> —–
>
>
>
> In enhanced indexing with minor risk factor
> mistmatches, the manager has discretion to tweek
> duration.
Edited response:
Tweaking duration is ok for major risk factor mismatches. Duration is a major risk factor, in fact its the largest risk factor of a bond portfolio.
 
Disagree that “tweaking duration” is permitted in enhanced indexing with minor mismatches. Source implies that tweaking duration only starts with Active Management large mismatches. Please reference your source.
 
paca06 Wrote:
——————————————————-
> Disagree that “tweaking duration” is permitted in
> enhanced indexing with minor mismatches. Source
> implies that tweaking duration only starts with
> Active Management large mismatches. Please
> reference your source.
Actually paca, you are correct. i went back to my notes. I confused enhanced indexing with minor risk factor mismtaches with large risk factor mismatches.
Thx
 
there is no EI with different major risk factors.
from a conceptual level, think about it—makes sense. only when you tilt active do you go that direction.
 
paco06 is correct…..any duration mismatch (however SMALL) is a LARGE risk factor mismatch.
 
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