How to enhance bond returns with naive strategies

The purpose of this paper is to present the results of a study that suggests that investors can enhance portfolio returns while following an indexing approach to passive management. In particular, we evaluate the effectiveness of naive strategies in selecting a portfolio that seeks to outperform a Treasury index over the six-year period, January 1, 1979 to December 31, 1984. The study covers two naive strategies that exclude judgmental information such as interest rate forecasts. The achievement of one of these strategies in outperforming the index is especially impressive, since, generally speaking, investors use passive strategies to minimize risk more than to maximize return. The passive approach, after all, employs minimal expectational input, while portfolio managers who pursue active strategies use expectations in the attempt to realize higher returns.