Fixed Income Index Funds: Demystifying Portfolio Construction and Rebalancing

Vol. 23, No. 1, 2025
by Stephen Laipply, Ananth Madhavan, James Mauro and Nogie Udevbulu

Assets in fixed income index mutual funds and exchange-traded funds (ETFs) have grown substantially in recent years. This paper examines fixed income index fund portfolio rebalancing efficiency using empirical evidence from four large fixed income index funds. We show how fund managers can preserve value in these portfolios using a wide range of dynamic portfolio management strategies while navigating the challenges posed by the general lack of liquidity and transparency in fixed income markets.