Practical Applications of Currency Crowdedness Generated by Global Bond Funds

Practical Applications Summary

“There has been a great deal of research on factor investing in equities, but far less on the fixed income side,” says Gueorgui Konstantinov of LBBW Asset Management. In Currency Crowdedness Generated by Global Bond Funds , he works to rectify that gap, demonstrating that nearly half of the variance in global bond manager returns can be attributed to five currency factors. He also sends a clear practical message: many highly skilled bond managers are not good at active currency management, but rely heavily on these currency factor “betas,” resulting in crowded trades and greater risk. “Investors should keep a close eye on their managers’ style exposures,” cautions Konstantinov. He spoke with Institutional Investor Journals about his research and the original article was published in the Winter 2017 issue of The Journal of Portfolio Management .