FOR PROFESSIONAL USE ONLY. NOT FOR USE WITH RETAIL INVESTORS.
C A SE S T U DY 3: FI X ED IN CO M E
Proprietary Credit Monitoring in Real Time
Tracking a fixed income index comes with challenges. Because many indices rely on ratings
agencies to define credit risk exposures, they may not capture all the up-to-the-minute
information that is embedded in market prices. This can result in unintentional exposures
to credit risk. Additionally, forced selling of bonds that fall out of investment grade ("fallen
angels") may come at a cost. Dimensional's real-time, market-based approach to credit
monitoring can help mitigate these limitations of index-tracking approaches.
An investment-grade bond may
begin trading like a high yield
bond before a credit rating
agency issues a downgrade.
For illustrative purposes only
BB
BBB
BBB
BBB
BBB
BB
BB
Maturity
1 Year 5 Year 10 Year
Yield
High Yield
Investment Grade
Are You Taking
On More Risk
than You Think?
86%
14%
Total number
of fallen-angel
downgrades
recognized by
Dimensional
Driven by internal
credit monitoring
Driven by rating from
credit rating agency
193
Not Falling for
Fallen Angels
Internal Downgrades
from Investment
Grade to High Yield,
2010–2022
8
Past performance is no guarantee of future results.
