“If spreads are tight, the index is concentrated and the trading is costly, how does one generate alpha in this space? There’s a paradox between investor expectations and market reality.”
Read: Expert panel: Diversification, flexibility steering institutional investors amid ongoing volatility
The solution is to break away from the traditional approach to a more diversified alpha strategy that can be adapted to market constraints, said Pagé, pointing to three pillars: credit curve, sector allocation and security selection.
Regarding curve positioning, it’s not just about owning credit, she said, but also where the investor is positioned along the curve. For sector allocation, she noted, it’s about looking for both tactical and strategic deviation from the benchmark, including top-down sector allocation. And because it’s a corporate bond portfolio, she added, security selection remains essential to ensure investors are adequately compensated for the risks they assume.
“These three alpha drivers together allow the manager to build a more resilient portfolio that relies less on a single alpha driver. They also help navigate the market’s structural constraints.”
The last piece of the puzzle in implementing a long-term corporate bond strategy is maintaining a broad toolkit, said Pagé, referring to using derivatives to expand the opportunity set and control unwanted risk. “The way we see it is that we choose the risk we want to be exposed to and hedge the remaining risk.”
Read: How are institutional investors approaching derivatives?
She also emphasized the importance of tactical flexibility, using the early coronavirus pandemic as an example. In March 2020, the cash bond market was basically frozen, she added, but the derivative market was open. “A manager with an expanded toolkit was able to trade and hedge the portfolio while adjusting exposures tactically through derivatives.”
Finally, Pagé pointed to efficient exposure, noting investors can adjust the duration or the credit exposure of the portfolio without having to liquidate the core holdings. Derivatives can reduce unwanted exposure and enhance flexibility, she said, because, in today’s market, implementation discipline is as important as the alpha drivers themselves.
“You can generate alpha in the long-term corporate bond space, but doing so requires a more nuanced approach with the right toolkit.”
While Pagé defined an approach that focuses on the credit curve, sector allocation and security selection, she noted no single lever can be sufficient on its own. “In a compressed, concentrated and liquidity-fragile environment, alpha can’t come from a single source of risk. It must come from having an innovative approach that takes smarter and more diversified risks.”
Read more coverage of the 2026 Global Investment Conference.