Evaluating four portfolio transition strategies

Over the long run, excess performance over benchmark is difficult to achieve in fixed income markets. Squandering alpha with unmanaged transition events can erode hard-earned excess performance and may prevent investors from reaching their investment goals. A comprehensive transition management approach that seeks to minimize performance slippage during these events helps investors to reach their long-term risk and return goals.

This paper discusses four transition management (TM) strategy options (below) and evaluates them using the three drivers of benchmark relative performance: fiduciary oversight, asset allocation and transaction costs.

  1. Terminated manager liquidates portfolio to cash
  2. New manager restructures to target portfolio
  3. Fiduciary TM restructures to treasury basket
  4. Fiduciary TM restructures to target portfolio
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