Video: Wilshire’s Schwarz Discusses Unconstrained Bond Funds

Wilshire’s Jason Schwarz tells Fox Business that unconstrained bond funds are superior to traditional bond funds, since the “bond bull market” of the past thirty years was premised on low interest rates, and interest rates are inevitably going to rise. While traditional bond funds will seek to replicate benchmarks that are likely to struggle over the next several years, unconstrained bond funds empower managers with the flexibility to use hedging strategies and derivatives to manage duration risk, and this should allow them to outperform other fixed-income categories.

Schwarz warns, however, that the growth of the unconstrained bond fund category has led to a “dispersion of returns,” wherein the best managers perform very well while “the mediocre are terrible.” Approximately $140 billion are invested into eighty unconstrained bond funds today, whereas only eleven of these funds existed in 2011.

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