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Passive strategy
Less role expectation
Key inputs are known at the time of
investment analysis
Key inputs such as objective of the investors,
risk taking ability
Type of passive strategy
Buy & hold strategy
Indexing strategy
Buy & hold strategy
It simply involve buying a bond & holding it
until maturity
A manager selects a portfolio of bonds based
on the objectives of the client with the intent
of holding these bonds to maturity
Investors dont trade actively to maximize the
return
Hold the bond with a maturity or duration
which is close to their investment horizon
Buy and hold strategy cont
Examine factor such as quality rating, coupon
level, terms to maturity, call features etc.
Only default-free or very high quality securities
should be held
Also, those securities that are callable by firm
(allows the issuer to buy back the bond at a
particular price and time) or putable by holder
(allows bondholder to sell the bond to issuer at a
specified price and time) should not be included
Buy and hold strategy cont
The buy-and-hold strategy minimizes
transaction costs