Identifying Correct Statement About Indexing in LDI

Very Easy Liability-driven Strategies Indexing

In the context of Liability-Driven Investment (LDI) strategies, asset managers often utilize indexing strategies to align the performance of their fixed income portfolios with specific liabilities. One common type of indexing strategy is to replicate the performance of a particular bond index. Which of the following statements best describes this indexing strategy in the context of LDI?

Indexing allows for active management of interest rate risks to enhance returns.

Indexing expects to provide returns that match the underlying bond index, aligning with liability cash flows.

Indexing strategies typically involve investing exclusively in high-yield bonds.

Hint

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