PT - JOURNAL ARTICLE AU - Andrew Chin AU - Wenxuan Tang TI - Factor Timing in Fixed Income Strategies AID - 10.3905/jfi.2020.1.092 DP - 2020 Mar 21 TA - The Journal of Fixed Income PG - jfi.2020.1.092 4099 - https://pm-research.com/content/early/2020/03/21/jfi.2020.1.092.short 4100 - https://pm-research.com/content/early/2020/03/21/jfi.2020.1.092.full AB - With the large swings in factor performance since the Global Financial Crisis, factor research and factor timing have garnered a lot of attention. Investors looking to add value on top of meager asset returns are expanding their toolkit to include factor timing. Within fixed income strategies, active managers have explored regime models, economic cycle indicators, and factor research to manage portfolio-level exposures to beta, regions, industries, duration, and credit. In light of these developments, we analyze historical manager returns to assess the impact of static factor exposures, factor tilts, and security selection. We find that most managers overweighted credit consistently and this largely explained the patterns of active returns over time. We also find that although factor timing has not added value for all the funds in aggregate, there are funds with persistent positive and negative contributions from factor tilts. Finally, across all funds, factor exposures, both strategic and tactical, are significant predictors of future active returns, thus emphasizing the importance of factors in fixed income strategies.TOPICS: Factor-based models, style investing, fixed-income portfolio managementKey Findings• We decompose historical manager returns into contributions from static factor exposures, factor tilts, and security selection for US fixed income strategies.• The active returns of most funds have been driven by their overweights to credit-related instruments.• Although factor timing has generally detracted from returns, there is persistence in this component, implying that both skilled and unskilled factor timers can be identified.• Factor exposures, both strategic and tactical, drive future active returns.