Fixed income factor portfolios for institutional investors

Abstract

We aim to address the concerns large institutional investors have when investing in the corporate bond market. When evaluating a potential strategy for inclusion into a portfolio, what metrics should investors be looking for? Is fixed income factor investing in the corporate bond market an appropriatestrategy to pursue? We will briefly review the “Norway” model’s key criteria for institutional portfolios. We will then show how factor investing in fixed income is consistent with these criteria. Finally, we give a concrete implementation with no turnover that institutional investors can use to target excess returns directly, measure managers for value creation or use as the basis for a more dynamic strategy.