Systematic Fixed
Income Investing

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.

Where art meets (data) science

Systematic investing is uncovering new opportunities in fixed income by combining vast datasets, scientific research, and deep human expertise to make sense of market complexity.

What is systematic fixed income investing?

Systematic investing, often called quantitative investing, is a rapidly developing field in fixed income.
Systematic fixed income strategies employ an objective, disciplined and repeatable process to identify, test and implement investment ideas.

Why a systematic approach to
fixed income?

Systematic fixed income strategies combine investment insights with cutting-edge technology, backed by disciplined risk controls that seek to deliver differentiated portfolio outcomes to investors.

Risks: There can be no guarantee that the investment strategy can be successful and the value of investments may go down as well as up. Risk management cannot fully eliminate the risk of investment loss.
Unique insights
Data-driven insights
Disciplined risk management
Disciplined risk management
Differentiated outcomes
Differentiated outcomes

Systematic active fixed income

Our systematic alpha-seeking fixed income strategies seek high quality alpha through a consistent, repeatable process that validates fundamentally oriented market insights with quantitative research.

Fixed Income Risks: Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.

Dig deeper into
systematic fixed income

What is driving the growth of systematic fixed income investing

An alpha-seeking systematic approach would have been extremely difficult to implement just a few decades ago, as there simply wasn’t enough data available to build a sophisticated investment model. Today that has changed completely.

Both the amount, and velocity of data that is available to be analysed has exploded. New technologies like artificial intelligence and natural language processing are helping to efficiently analyse these datasets and transform them into insights. Now, limited or stale market information can be augmented with more robust datasets to create real-time sentiment, fundamental and economic indicators. These techniques are powerful new tools for quant investors to identify and capture alpha opportunities.

Understanding the systematic investment process

A common perception of quantitative bond investing is that it is a “black box,” with trade ideas being spit out by a machine. In practice, experienced professionals are critical to generating and refining investment ideas.

BlackRock’s systematic idea generation in action:

1. Idea generation – Researchers identify investment ideas and any dislocations in markets.
2. Qualitative testing – Top ideas are evaluated to see if they are sensible, predictive, consistent and additive to the portfolio.
3. Quantitative testing – If the idea fits all four criteria, it is tested quantitatively through an academically-oriented process.
4. Development of model – The idea is built into a model that incorporates estimated risk, return and trade costs. Modelling ideas ensures that they are implemented in a systematic and unbiased manner.

Once in a portfolio, a model is evaluated using a detailed return analysis which creates a feedback loop to continuously refine it.

Potential advantages of systematic fixed income strategies

Compared to fundamental fixed income approaches, systematic strategies may have distinctive features including:

  • Minimal bias: In a systematic approach, insights are applied consistently through time, through markets and across securities. Cognitive bias and emotion are essentially removed. A model can improve through time as it is finely tuned and informed by more data.
  • Wide portfolio breadth: A systematic strategy is not limited by the constraints of human attention and processing capability. It can monitor thousands of changes in metrics, prices and market conditions a day. Compared to fundamental strategies that focus on a few concentrated positions, a quant bond strategy allows for a wider range of insights and investment decisions across a broadly diversified portfolio.
  • Defensive-orientation: Many systematic alpha-seeking strategies tend to have defensive return characteristics during equity market downturns. For example, when investing in credit, the focus is on fully valuing the firm and its overall chances of default, from there debt can be evaluated relative to its price. Done correctly, this approach can identify and underweight bonds more likely to default, resulting in less downside risk in the portfolio.

 Potential challenges of systematic fixed income investing

As a relatively new approach to fixed income, quantitative strategies can face a set of unique portfolio challenges including:

  • Trading hurdles: Many academic articles are written identifying investment models that appear to deliver strong results. In reality many of them do not work because transaction costs in fixed income outweigh the potential excess returns gained by trading. Having a process to realistically measure trade costs is what separates successful real-world strategies from theoretical strategies.
  • Data deluge: The availability of data is no longer a gating factor in fixed income, but more data does not mean outperforming is easier, it just provides more opportunities to uncover and test insights. Alpha can only be created by professionals with a deep understanding of the data who can skillfully model it to pursue opportunities.

Why BlackRock for systematic fixed income investing?

Source: BlackRock as at July 2019. All amounts given in USD.
Innovative Drive
Innovative Drive
Over 18 years of innovation across quantitative fixed income investment styles
Unrivaled Scale
Unrivaled Scale
Manage over $1 trillion in systematic strategies
Investment Platform
Investment Platform
Backed by Aladdin® our sophisticated risk management platform

Innovation is at the heart of our investment platform, with our strategies supported by the scale and technological backbone of BlackRock.

Tom Parker
CIO of Systematic Fixed Income