Fixed-income investing hasn't kept up with the rapid pace of technological innovation in the rest of the financial industry. Alliance Bernstein says that's about to change
Artificial intelligence, automation and predictive analytics are transforming virtually every industry, but bond investing hasn't really changed. The typical investment process is inefficient, from research and portfolio construction to trading. But this story will change as human and machine join forces. In the next few years, we expect the rise of fixed-income technology to open a wide gulf in performance between those managers who have integrated cutting-edge tools into every stage.
In the past, the quest for excess return (alpha) was dominated by either the superhuman bond investor who attempted to singlehandedly navigate global markets or the quantitative shop that could exploit inefficiencies in the short term but couldn't see the bigger picture.
In an information-heavy world, just sticking with the status quo won't be good enough. It's imperative to integrate technology into the investment process to provide managers with tailored information that enables faster decision-making, makes every step of the process more efficient, and provides a more complete picture of risk and opportunity.
Several firms have used a "best of breed" strategy, creating or sourcing individual tools to help in one specific area of investing, such as research, trading or portfolio management. That's a good start, but to stay ahead, firms will need to focus on how these tools work together to create an ecosystem that magnifies the human impact.
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