There are a number of different techniques which can be used by Bond portfolio managers to achieve the desired outcomes of their clients depending on the way in which that fund has been set up and what the objectives of the fund are.

The first approach is active management. Within this approach the bond portfolio manager is trying to generate more return than a designated Benchmark. This can be achieved through holding different weights in the bonds that are within that index.

The decisions as to which bonds to include within the active portfolio are typically analyzed first of all at a high level to think about the different risks that are faced on a portfolio-wide basis covering things such as interest rate risk credit risk and potentially even on geography as well. So the portfolio manager may decide to hold different bonds to adjust the exposure to interest rates or exposure to credit risks than there are in The Benchmark itself. The next approach is to try to generate the same return as a benchmark. There are some more challenges to constructing an index tracking Bond portfolio and might be the case for an index tracking Equity portfolio because Bond indexes tend to have a very large number of constituent Securities making it very difficult for the bond portfolio manager to hold all of those same Securities in the same weights as there are in The Benchmark due to the lower levels of liquidity on many bonds. And also the higher transaction costs that would come with holding a very large number of Securities as a result in order to generate the same return as The Benchmark many index funds adopt a sampling approach. So they only hold a smaller number of Securities than there are in The Benchmark, but they attempt to match those primary risk factors around such things as interest rate risk and credit risk.

The final Bond portfolio management technique is around liability matching.

Because of the known future cash flows on bonds. It does mean that fixed income securities are attractive Investments. If we are looking to use the portfolio to ensure a future liability can be met there are a number of different ways that these liabilities could be met but two of the major ones are cash flow matching where we buy and hold a portfolio of bonds whose cash flows in the future will add up to match our future liabilities. Or alternatively we could use immunization. This approach attempts to match the duration of the portfolio to the duration of the liability.