Advantages to Active Management
Why Active Management?
- "Buy and hold" philosophy no longer works
- Bid and ask spreads have widened, necessitating agency execution
- Price volatility has increased
- Liquidity has decreased
- Insurance is no longer a guarantee
- Credit quality is uncertain, proactive analysis is imperative
- Money market instruments are not always liquid
Why Not Mutual Funds?
- Mutual funds were created for smaller investors to get diversification and professional management
- Higher fees reduce returns
- Tax inefficient
- Embedded capital gains
- Potential for AMT income
- State/local taxes may be incurred
- May use leverage
- Fund units have NAV with perpetual maturity; individual bonds mature at par