10-year returns of median U.S. active and passive managers
fig.1 Past performance is not a guarantee or a reliable indicator of future results
As of 31 December 2016. Source: Morningstar
Based on Morningstar U.S. Intermediate-Term Bond Category for fixed income and Morningstar U.S. Large Cap Blend Category for equities. Institutional share class.
1Core Fixed Income: Bloomberg Barclays U.S. Aggregate Index; Core Equity: S&P 500 Index
fig.1 Past performance is not a guarantee or a reliable indicator of future results
As of 31 December 2016. Source: Morningstar
Based on Morningstar U.S. Intermediate-Term Bond Category for fixed income and Morningstar U.S. Large Cap Blend Category for equities. Institutional share class.
1Core Fixed Income: Bloomberg Barclays U.S. Aggregate Index; Core Equity: S&P 500 Index

Bonds Are Different

Structural elements create opportunities for active managers

The differences between stocks and bonds, including how they trade, create bond-market specific headwinds for passive strategies – giving active managers more of an edge in fixed income than in equities.

Over-the-counter trading: differences in how bonds and equities trade

Stocks trade roughly 45 times more than the most liquid investment grade corporate bonds in a day - and the size of those trades are considerably smaller.

Typical Trades Per Day

Average Trade Size ($)

  • Most Liquid Investment Grade Corp
  • Most Liquid High Yield Corp
  • NYSE/NASDAQ Stocks
fig.2 As of 31 December 2016
Source: McKinsey, NASDAQ, QMX, NYSE Euronext, FINRA TRACE

Why go active now?

Lower expected returns makes alpha more important than ever

Forward-looking index returns, over a five-year horizon, have historically been closely correlated with the index's yield at the start of each measur