And in terms of how we view portfolios, those exceptions can be useful. There's not much room for this manager to maneuver along the yield curve. Of course, bond fund managers can also add value by holding foreign pay bonds within the portfolio. This provides a currency kicker, which can add value in addition to any gains that might be associated by shifts in domestic interest rates. In my view, with domestic bond funds the cards are stacked against the individual investor.
Timing is one example.
There are lengthy delays after a reporting period, before the client can ascertain what the manager did or is contemplating to do. Also, cash reserves can change. While building up large cash reserves before bond prices crash is desirable, frequent and large changes in cash represent a higher risk approach. Quarterly or semi-annual statements provide only a snapshot or where the portfolio has been. There is no way of telling whether the fund manager totally changed the structure of the fund in the meantime.