BNY's Brendan Murphy Highlights Perks of Active Fixed Income

After all, the Federal Reserve has begun trimming interest rates once again. With rates coming down and credit risks shifting, the fixed income market may call for more flexibility looking ahead. 

Brendan Murphy, CFA, Head of Fixed Income, North America at Insight Investment, BNY Investments’ fixed income specialist, joined VettaFi’s recent Q3 Fixed Income Symposium to offer his perspective on active management. During his panel, Murphy broke down key trends backing active management and why advisors and investors should consider turning towards the space. The panel was moderated by Roxanna Islam, CFA, CAIA, Head of Sector & Industry Research at VettaFi.

Many advisors and investors who are looking to expand their active fixed income allocation do so by converting some of their passive exposure into active funds. As such, Islam asked Murphy what advantages active management can offer over passive funds in the fixed income sector. 

Murphy noted that active fixed income funds can offer a wide variety of benefits over their passive contemporaries. To start, he pointed out that active management offers the distinct possibility of higher returns. For a typical core plus bond product, Murphy noted that active management generally looks to deliver 150 basis points of excess returns. 

Furthermore, Murphy added that risk management is a crucial perk of active fixed income. This includes not only managing duration risk, but credit risk as well. 

“Having a team in place that can identify those companies or those issues that could potentially be in trouble at some point and avoid them is an important way to think about adding value,” Murphy noted. 

Moving on, Islam asked Murphy if there are specific market conditions in which it could be better to use active fixed income instead of passive fixed income. Pushing it further, she asked if the current conditions could be better for active versus passive. 

For Murphy, the conditions that favor active management tend to fall around volatility. He noted that bouts of volatility create dispersion in the fixed income market. These dispersions open up opportunities for active managers to show advisors what they can bring to the table. 

In regards to the current market period, Murphy noted that the source of volatility has “shifted a lot over the last few years.” COVID and credit risk drove volatility for quite a while. Nowadays, however, the focus remains on central banks and inflationary uncertainty. Changing conditions for volatility call for flexibility, which, as Murphy pointed out, further bolsters the case for active fixed income. 

Murphy also highlighted some of BNY’s own actively managed fixed income strategies. One of the funds that he showcased was the BNY Global Fixed Income Fund (SDGIX). Murphy pointed out that many investors tend to underappreciate what income exposure can bring to a portfolio, especially through active management. 

“Sometimes, when they’re thinking about global [fixed income exposure], they get scared to take that risk. But if you look at the better diversification you get from having a more global benchmark, when you take that currency aspect out of it, you get quite a robust asset class and quite a robust opportunity set,” noted Murphy.

To watch the full symposium and receive CE credits, register for the replay here.

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