No fixed income index makes sense in the long term, says Brandywine CIO Hoffman

There is no fixed income index that makes sense in the long term, making passive strategies across the asset class unattractive compared to active management, according to David Hoffman, CIO of Brandywine Global.
Speaking at Legg Mason’s Investor Day in New York City, Hoffman – who also co-manages the Brandywine Global Fixed Income strategy – said that, as fixed income indices are weighted towards the most heavily indebted companies, passive investment exposes investors to businesses that might not always be the best performers.
“Passive management must be compared to some index and in our view there is no fixed income index which makes sense in the long term,” he says. ”In the short term, you can pick something, but that’s really active management. Fixed income indexes are driven by who issues the most debt and the biggest debtors aren’t always the best performers. They might be sometimes and they might not be, so to us, the index construction tells you absolutely nothing about how you can make money in the world of bonds.”
He added that Brandywine has been “index agnostic” for 20 years, arguing that “our definition of risk is losing our clients’ money rather than having a tracking error risk, which assumes that the benchmark is the right place to be. Active is how we make money for clients”.