Arnott says blindly following a debt-weighted index can be especially hazardous for investors in riskier assets such as high-yield and emerging market bonds. He says that in 2002, PIMCO active bond managers backed away from holding Argentine bonds, even though they accounted for a big percentage of the index. By avoiding bonds that soon collapsed, the PIMCO funds outperformed.
Bond Index Funds Trail, Exposing Flaws
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