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Active Fixed Income

Diversified strategies designed to generate excess returns and a consistent source of yield.

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Principles of Investing

Focus on Consistency – Avoid Large Concentrated Bets

When the bond markets experience turmoil the top performing managers have historically taken a hard hit likely due to large bets across various sectors or duration. Diversifying your sources of return may be critical to providing more consistent outcomes.

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Percent of Top Quartile Managers That Declined in Peer Rank After a Credit Event in the Market

Source: eVestment, FRED, Northern Trust Asset Management. Data from January 1, 1993 to June 30, 2023. Credit events are defined as quarters where the absolute % change in 10-Year Treasure yield is greater than the average +1 standard deviation. A decline in peer rank is defined as a decline in the trailing 1-year return peer rank from the quarter end before the credit event to the quarter end of the credit event. The analysis was conducted using the eVestment U.S. Core Fixed Income Universe. Historical trends are not predictive of future results.

Principles of Investing

We Favor Bonds That Increase Risk-Adjusted Returns

Bonds at the lower-end of the investment grade universe have historically offered higher risk-adjusted returns with minimal added default risk.

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Sharpe Ratio by U.S. Credit Quality (last 20 years)

Source: Northern Trust Asset Management, Morningstar Direct, S&P Global. Sharpe ratio data as of June 30, 2023. Market indices are used for the Sharpe ratio calculations: ICE Bofa AAA US Corporate TR represents AAA, ICE Bofa AA US Corporate represents AA, ICE Bofa A US Corporate TR represents A, and ICE Bofa BBB US Corporate TR represents BBB. Average default rates from S&P Global, Default, Transition, and Recovery: 2022 Annual U.S. Corporate Default and Rating Transition Study. A security rating is not a recommendation to buy, sell or hold securities. The rating may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of the other ratings.

Principles of Investing

Protect Against Defaults to Deliver Consistent Outcomes in Any Market

The risk-reward tradeoff between yield and risk needs to be consistently assessed and monitored, as the impact of even 1 – 2% in defaults can quickly erode any previous short-term yield gains.

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High Yield 3-Year Rolling Returns vs. Default Rate Since 1989

Source: eVestment, Northern Trust Asset Management. Data as of June 30, 2023. High yield is represented by Bloomberg US Corporate High Yield Index. Past performance is not indicative or a guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. it is not possible to invest directly in any index. Indexes are the property of their respective owners, all rights reserved.

Principles of Investing

Favor Diversification Over Concentration

Portfolio concentration can add idiosyncratic risk that we systematically avoid by effective diversification that involves setting individual security weight constraints, diversifying by maturity, industry, sectors, countries and currencies.

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10 Year Median Peer Group Ranking — eVestment U.S. Core Universe

More Diversifed Strategies is defined as strategies that rank in top 50% of peer group universe for total number of holdings, Less Diversified Strategies are those that appear in the bottom 50% of the universe. Historical trends are not predictive of future results. Source: eVestment, Northern Trust Asset Management. Data as of June 30, 2023.

Principles of Investing

Avoid Speculative Derivative Bets That Increase Risk

We purposefully avoid esoteric securities and short-term speculative positions that can be costly during times of stress in order to avoid unintended outcomes that may occur with the increased complexity and risk.

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Median Manager Peer Group Ranking Return During 20% Market Corrections (eVestment U.S. Core Universe)

The use of derivatives was determined by a field in eVestment that asks if the manager uses derivatives in the management of the product. Historical trends are not predictive of future results. Source: eVestment, Northern Trust Asset Management. Data as of June 30, 2023.


We purposely construct portfolios that seek to generate excess returns by incorporating our high conviction interest rate and credit strategy views so that we can ultimately deliver more consistent outcomes to our clients while mitigating risk.

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