A long-only active credit manager faces similar corporate bond portfolio choices to those in an earlier example:

Given an expectation that an economic rebound will cause both credit spreads and expected loss rates to fall by one-third, an active manager decides to tilt her credit portfolio toward high yield. Compare the impact of this rebound scenario on an active portfolio (33.3% invested in each of the Ba and B bond categories, with the remaining 33.3% split evenly between A and Baa) versus on an equally weighted passive portfolio.

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Rating Category A Baa Ba B OAS 1.40% 2.00% 3.75% 5.50% EffSpreadDur 5.5 6.0 4.5 4.0 Expected Loss 0.10% 0.30% 1.00% 4.50%