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August 4, 2020

Same Destination, Different Journey: A New Approach to Customized Fixed Income

Investors over the last decade have increasingly turned to cost-effective passive products, such as exchange-traded funds (ETF), as a way to target exposure to specific equity sectors in their portfolio. Benefitting from this trend, Parametric’s Custom Core strategy has experienced tremendous growth, with financial advisors and their clients seeking alternatives to ETFs—especially those that can add value through customization and tax-loss harvesting in a separately managed account (SMA). In response to investor requests for these same attributes in their bond SMAs, Parametric has launched the new Custom Core Fixed Income (CCFI) strategy, extending its franchise to include seven bond benchmarks. 


Due to structural differences between the equity and fixed income markets, optimization has proven to be the most effective method for constructing a low-tracking-error equity SMA, while a stratified cells approach that incorporates fundamental research is a more practical way to construct a bond portfolio. This paper describes how the CCFI hybrid investment process constructs fixed income SMA portfolios using this innovative approach.  


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Bernie Scozzafava

Bernie Scozzafava, CFA

Director
Quantitative Research and
Portfolio Management

Bernie Scozzafava

Bernie Scozzafava, CFA

Dan Codreanu

Dan Codreanu, CFA

Director
Portfolio Management and Technology

Dan Codreanu

Dan Codreanu, CFA

Thomas Luster

Tom Luster, CFA

Managing Director, Taxable SMA Strategies
Thomas Luster

Tom Luster, CFA

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