“Research-driven security selection is what helps build portfolios that are truly diversified and designed to endure through changing market environments”
Jeff Katz,
TCW
“Advisors do not need clients to become experts in structured finance. They need confidence that each holding has a clear purpose inside the portfolio”
Brandon Treasure,
First Pacific Financial
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The bond market is bigger than the benchmark
TCW argues that the Bloomberg Aggregate has become a useful benchmark but an increasingly incomplete map of today’s bond market
Read on
Jeff Katz
TCW
Brandon Treasure
First Pacific Financial
Industry experts
EVERY BOND benchmark is a decision about where to point the light.
Economists have long used the “streetlight effect” to describe the tendency to look for answers where they are easiest to find rather than where they are most likely to be. The story is simple: a man hunts for his keys under a lamp post because that is where he can see, not because that is where he dropped them.
Bond benchmarks create a similar effect; they illuminate one part of the market exceptionally well. The mistake is assuming that what falls outside matters less, just because it is harder to analyze.
Seeing something similar in fixed income, Jeff Katz, securitized product specialist in the fixed income group at TCW, believes, “The Bloomberg Agg is pretty narrow in scope. It’s only about $30 trillion. So you really only capture about a third to a half of the opportunity set.”
investable universe, the opportunity increasingly lies in identifying where research, security selection, and relative value can potentially uncover risks and return drivers that sit beyond index allocations.
The parts of the market you don’t benchmark Benchmarks were never designed to describe every investment opportunity; they exist to measure a defined slice of the market. As government borrowing has expanded, Treasuries have grown to roughly 45 percent of the Bloomberg Aggregate. Large parts of the global fixed income market, from high-yield bonds and emerging markets to many securitized assets, sit outside it altogether.
That matters more today than it did a decade ago. When interest rates hovered near zero, there was relatively little incentive to venture beyond traditional bond allocations. Fixed income played a largely defensive role. Today, with yields materially higher and economic expectations changing almost meeting by meeting, advisors are asking more of the asset class. Income matters again, but so does resilience.
That changes the conversation from whether fixed income belongs in a portfolio to how it should be constructed.
Katz speaks from the breadth of TCW’s investment platform. TCW manages roughly $206 billion across global sovereign debt, investment-grade and high-yield credit, and one of the industry’s larger securitized businesses. While many investors experience fixed income largely through benchmark-driven products, TCW’s research potentially reaches into corners those products never touch.
Brandon Treasure isn’t convinced advisors always realize it. The First Pacific Financial co-chief investment officer says there’s “maybe a naivety that the Agg is the most diversified piece of the fixed income market.”
None of this makes the benchmark flawed; it just implies that investors seeking broad diversification may not be getting quite what they assume. For Katz, that distinction highlights the growing importance of active management. If the benchmark represents only a portion of the
Paid for the risk, or just paid Treasure believes investors are still anchoring the wrong market. The shock of 2022 continues to influence investor behavior. After one of the worst years for bonds in decades, many investors remain reluctant to revisit fixed income, even though the backdrop has fundamentally changed.
“If you go back five-ish years ago, I think the 10-year Treasury was sub 1 percent. Fast-forward today, and you’re close to 4.5 percent. So it’s a much different environment than it was just a few years ago. You don’t have to stretch too far in terms of credit or duration to get a pretty good return,” Treasure says.
Rather than viewing the bond market as a static allocation,
TCW approaches it as a series of relative value decisions. The firm’s highest-conviction ideas come from research rather than benchmark weights. Conviction, on Katz’s account, moves between sector allocation, security selection, and structure, depending on where the market is compensating investors most effectively for the risks being taken.
“In today’s world, with information and technology, these opportunities tend to change much more rapidly and the cycles tend to be shorter,” Katz says. “Being able to be flexible and take advantage of those dislocations becomes much more important.”
“We’ve had a lot of volatility. But what has not really moved is the relative value conversation in credit.”
Corporate bonds may still offer income that looked attractive a few years ago, but tighter spreads leave less compensation for assuming additional credit risk.
Treasure says this broader opportunity set has become an increasingly important part of manager due diligence. Rather than simply seeking higher yields, advisors want to understand how managers identify opportunities, manage risk, and maintain discipline across different market environments. Repeatability of process, he says, can matter just as much as performance.
In order to avoid unnecessary concentration, Katz says, “You really need to look outside and think about a broader landscape; avoid adding incremental risk in a very narrow scope.”
Looking beyond traditional credit The search, then, is not simply for more yield. It’s for different drivers of return. One of the places TCW has consistently looked is securitized credit, an area that, while central to the firm’s fixed income platform for decades, remains underrepresented in traditional benchmarks.
“Whether it’s residential mortgages, commercial mortgages, auto loans, or credit cards, these are all parts of people’s everyday lives,” Katz says. “You’re not taking exposure to one company; you’re investing across thousands of underlying borrowers.”
Unlike corporate bonds, which depend on the fortunes of a
single issuer, securitized investments are backed by diversified pools of mortgages, auto loans, commercial real estate debt, and consumer receivables. That means the research process changes as well. Instead of analyzing a single balance sheet, TCW’s analysts evaluate borrower behavior, collateral quality, and transaction structure alongside traditional credit fundamentals before capital is allocated. That broader lens allows the team to compare opportunities across consumer, residential, commercial, and corporate markets rather than limiting decisions to a single segment of fixed income.
That difference is also why the asset class demands closer scrutiny. Treasure uses mortgages to illustrate the point. Most homeowners understand the borrowing side of the equation, whereas the investment side is less familiar.
When rates fall, borrowers refinance and mortgages are repaid sooner than expected. Investors receive their capital back just as longer-duration bonds would typically be gaining value, changing the way that part of the portfolio behaves. It is one example of why securitized credit cannot be assessed in quite the same way as corporate bonds.
Complexity, though sometimes treated as a drawback, can in actuality be a barrier that discourages capital from entering a market. For firms willing to dedicate analysts, data, and underwriting resources, that same barrier can create opportunities unavailable in more heavily trafficked sectors.
It is why TCW has built teams that analyze everything from corporate balance sheets to loan-level borrower behavior, looking for value that broad benchmarks simply cannot capture and evaluating each security on its own merits rather than treating securitized credit as a single asset class.
“The ability to have a platform that has the scale and scope and breadth and depth to be able to analyze not only corporations but consumers really provides us with an opportunity,” Katz says.
Treasure argues that advisors do not need clients to become experts in structured finance. They need confidence that each holding has a clear purpose inside the portfolio.
“I think one of the ways that you can get a little bit of incremental return is having some out-of-index type of securities,” Katz says. “That adds diversification to a portfolio that is just not present in a typical index.”
Security selection, risk budgeting, and consistency through different market environments become just as important as performance itself, Treasure says. For advisors, the goal is not simply maximizing yield but constructing portfolios with multiple sources of income and diversification that can perform across a range of market environments.
The true distinction is owning assets that respond to different economic forces, not just owning more securities.
Implementation matters Identifying opportunities across a broader fixed income
universe is only part of the equation. Advisors also need an efficient way to access those opportunities within client portfolios.
The popularity of active fixed income ETFs has grown quickly. The wrapper, Katz says, offers flexibility, transparency, liquidity, and potential tax efficiency.
“We’re wrapper agnostic,” he says. “It’s the same investment team, it’s the same process, it’s the same philosophy, just in a different wrapper.”
As the active fixed income opportunity set expands, access to more sectors does not remove the need for judgement.
Treasure values candor above almost everything else, favoring managers who are transparent about what they have gotten right and what they have gotten wrong, “You want the manager that’s spreading out their active bets in a way that even if they make a slight misstep, your strategy is going to perform like you expect it to.”
Large ETF allocations bring practical considerations, Treasure says, that rarely appear on a factsheet. A strategy may have an attractive long-term record, but if entering a $15 million or $20 million position materially moves the market, that cost comes directly out of the client’s return. Liquidity, bid-ask spreads, and the infrastructure supporting the ETF become part of the investment case, not an operational afterthought.
The firms that inspire the greatest confidence, he suggests, are often the ones willing to have what he describes as a “delightfully nerdy conversation about ETF liquidity.”
The ability to adjust duration, rotate between sectors, or introduce less familiar areas such as securitized credit depends on having a manager with both the flexibility and the discipline to make those decisions consistently. It depends on having a research platform capable of comparing opportunities across the entire fixed income universe.
WHEN BENCHMARKS CREATE BLIND SPOTS
The Bloomberg Aggregate captures roughly $30 trillion of a global bond market closer to $160 trillion.1
TCW is a privately held, global asset manager with more than 50 years of experience across fixed income, public equity, and alternative credit. As an investment-led firm and trusted financing partner, we invest with intention − focusing only where we have a discernible and repeatable edge.
Guided by disciplined decision-making, deep research, and a high-conviction approach, we build carefully curated portfolios designed to deliver lasting advantage for our clients across market cycles.
Jeff Katz is a securitized product specialist in the fixed income group. He joined TCW in 2012 and brings the firm extensive experience with prior roles at Western Asset Management Company (WAMCO) and Pacific Investment Management Company (PIMCO). At WAMCO he served across multiple functions, including senior portfolio manager, trader, and research analyst, in addition to co-heading the RMBS team. Prior to that, Katz was a senior portfolio associate at PIMCO. Katz began his career at Republic National Bank of New York as a closing analyst. Having graduated with honors from the University of Florida with a BS in finance, he holds an MBA in finance from the UCLA Anderson School of Management as well as FINRA Series 7 and 66 licenses.
TCW
Jeff Katz
Brandon Treasure’s interest in financial services stems from the vast opportunity for research and analysis in the industry. From quantifying portfolio probabilities to measuring the risk inherent in the capital markets, he thrives on studying challenging concepts.
Treasure began his career in the financial services industry in 2002, working with defined contribution plans and later defined benefit plans for a local retirement plan administrator. He kept a devotion to investing by studying, reading, and learning as a primary leisure activity. He joined First Pacific in 2016, strengthening the firm’s investment team. Brandon and his wife embark on adventures, traveling around the Pacific Northwest with their daughter, trying new restaurants, and eating gourmet food.
First Pacific Financial
Brandon Treasure
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Published September 14, 2026
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Treasuries now represent about 40% of the benchmark.2
More government issuance means greater concentration, not necessarily greater diversification.
Entire sectors, including many securitized assets, remain outside the index.
Measuring the market and investing in it are increasingly becoming two different exercises.
Sources: 1. Bloomberg Professional Services. Jan 2026 2. https://www.ishares.com/ch/professionals/en/products/287339/ishares-us-aggregate-bond-ucits-etf-usd-acc-fund
1. The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For month end and standardized performance, please visit www.tcw.com.
At TCW, more than 20 analysts focus exclusively on securitized markets, supported by a dedicated New York team covering private issuance.
THE HIDDEN TRADE-OFFS IN SECURITIZED CREDIT
Mortgage-backed securities can potentially shorten in duration when falling rates trigger refinancing.
Liquidity often comes through dealer markets rather than continuous exchange trading.
Extra yield may reflect structural complexity, not necessarily weaker credit quality.
Security selection has historically contributed nearly half of TCW’s excess return, underscoring the value of bottom-up research.1
Position sizing matters as much as asset selection; diversification should enhance a portfolio, not dominate it.
Disclosures
Terms:
Basis points (BPS): A unit of measure equal to 1/100th of 1% (0.01%). Basis points are commonly used to describe changes in interest rates, bond yields, and spreads. For example, 100 basis points = 1.00%.
BBB assets: Generally refers to securities rated BBB by Standard & Poor’s (or the equivalent Baa rating by Moody’s). A BBB rating represents a relatively low-risk bond or investment and is the lowest tier of investment-grade credit quality. Bonds rated BBB-/Baa3 or higher are considered investment grade.
Bid-ask spread: The difference between the bid price (the highest price a buyer is willing to pay for a security) and the ask price (the lowest price a seller is willing to accept). The spread represents a transaction cost and is often used as a measure of market liquidity. A narrower spread generally indicates a more liquid market. The TCW glossary defines spread as “the difference between the bid and the ask price of a security or asset.”
Bloomberg U.S. Aggregate Bond Index: A market capitalization-weighted index of investment-grade, fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. An investor cannot invest directly in an index.
Commercial Mortgage-Backed Securities (CMBS): A debt obligation that represents claims to the cash flows from pools of mortgage loans on commercial properties such as office buildings, hotels, retail centers, industrial facilities, and multifamily housing.
Emerging markets: Economies that are transitioning from lower-income, less-developed, often pre-industrial economies toward more modern, industrialized economies with higher standards of living. Emerging markets typically offer higher growth potential but may involve higher economic, political, and market risks than developed markets.
Important Disclosures Investing involves risk, including possible loss of principal. Diversification does not assure a profit or protect against loss. Past performance does not guarantee future results.
Investors should consider the investment objectives, risks, charges, and expenses of a Fund carefully before investing. A Fund’s Prospectus and, if available, Summary Prospectus contain this and other information about the Fund. To receive a Prospectus and, if available, Summary Prospectus, please call 877-829-4768 or you may download the Prospectus and, if available, Summary Prospectus from the Funds’ website at tcw.com. Please read it carefully.
Shares of any exchange traded fund (ETF) are bought and sold at market price (not net asset value (NAV)), may trade at a discount or premium to NAV and are not individually redeemed from the Funds. Brokerage commissions will reduce returns. NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times.
Investment Strategy and Performance: The description of TCW ETF’s investment strategy is intended to be representative but may be changed from time to time by TCW, and TCW may alter the information at its discretion. TCW intends to be focused and directed in the selection of opportunities to actively engage with portfolio companies of the Fund. As we seek to deliver on our client’s financial objectives, engagement and active ownership are integral components of TCW’s research and investment process. Our data-informed engagement and active ownership practices achieve several objectives. The information elicited from these practices not only helps improve our fundamental research, but our engagement and active ownership practices may also have positive impacts on the company or other entities by suggesting best practices in addressing critical, financially material issues in areas of sustainability, corporate governance, or executive compensation. In TCW’s view, active ownership improves value and informs future investment decisions.
High yield securities may be subject to greater fluctuations in value and risk of loss of income and principal than higher-rated securities. It is important to note that Funds are not guaranteed by the U.S. Government. Fixed income investments entail interest rate risk, the risk of issuer default, issuer credit risk, and price volatility risk. Funds investing in bonds can lose their value as interest rates rise and an investor can lose principal. Funds investments denominated in foreign currencies will decline in value if the foreign currency declines in value relative to the U.S. dollar. Fund share prices and returns will fluctuate with market conditions, currencies, and the economic and political climates where the investments are made. The securities markets of emerging market countries can be extremely volatile. Mortgage-backed and other asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments. MBS related to floating rate loans may exhibit greater price volatility than a fixed rate obligation of similar credit quality. With respect to non-agency MBS, there are no direct or indirect government or agency guarantees of payments in pools created by non-governmental issuers. Non-agency MBS are also not subject to the same underwriting requirements for the underlying mortgages that are applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee. Liquidity Risk. Lack of a ready market or restrictions on resale may limit the ability of the Fund to sell a security at an advantageous time or price. The liquidity of the Fund’s assets may change over time. Derivatives Risk. A derivative is a financial contract, the value of which depends on or is derived from, the value of an underlying asset such as a security or an index.
TCW Funds are actively managed, which means that investment decisions are made based on the Adviser’s investment views. There is no guarantee that the investment views will produce the desired results or expected returns, which may cause the Fund to fail to meet its investment objective or to underperform its benchmark index or funds with similar investment objectives and strategies. Furthermore, active trading that can accompany active management may result in high portfolio turnover, which may have a negative impact on performance. Active trading may result in higher brokerage costs or mark-up charges, which are ultimately passed on to shareholders of the Fund. Active trading may also result in adverse tax consequences.
The TCW and TCW Flexible Income ETFs are distributed by Foreside Financial Services, LLC.
The views and opinions expressed by Brandon Treasure are his own and do not necessarily represent the views of First Pacific Financial. This discussion is not a recommendation to buy, sell, or hold any security or to adopt any investment strategy. Nothing in this podcast creates an advisory, investment, or fiduciary relationship between First Pacific Financial, Brandon Treasure, and listeners. Individuals should not rely on the commentary provided as personalized investment advice. Before making any investment decision, consult a qualified financial advisor who understands your individual circumstances. FPF is not responsible for the accuracy, completeness, or timeliness of any information provided by the host or other third parties involved.