A Framework for Understanding Bond Portfolio Performance

Aim: The author seeks to provide a framework for analysing and, predicting the returns on actively managed portfolios of bonds – a task different from analysing the bond market itself. This article is suitable for AFAs who analyse and select bonds for inclusion in their clients’ portfolios.

Outcome: Advisers completing this module will:

  • Understand how the concepts of alpha and beta can be applied to bond analysis.
  • Understand the rationale behind a bond portfolio manager’s chosen duration and what it will mean for client’s bond portfolios.
  • Have a framework to analyse a bond portfolio manager’s forecast performance and so assist with deciding whether or not to invest with that manager.
  • Understand yield rates and the importance of hedging against inflation.