Benefits of Indexing in Liability-Driven Strategies

Consider the fixed income portfolio of a pension fund that has adopted a liability-driven investment (LDI) strategy. The fund aims to align its assets with its expected liabilities, which are primarily comprised of future pension payouts. In order to manage interest rate risk and ensure that the funding status remains stable, the fund is considering an indexing approach. This indexing strategy would involve matching the duration and cash flow characteristics of the fixed income investments with the present value of the expected liabilities.

Which of the following statements best describes the benefits of adopting an indexing approach within a liability-driven investment framework?