2010 AM Mock Question 2C

CFA Level III Portfolio Management
#1

Here guideline answer says that decreasing interest rates resulted in underperfomance, giving that Stewart uses short duration strategy. But shouldn’t shorter duration lead to overperfomance if yield curve steepens (decreasing interest rates)?

Thanks!

#2

Based on your description: With decreasing interest rates, bonds will increase in value. You would want high duration to take advantage of that.

If you are short duration, you are underperforming!