The Kern County Employees’ Retirement Association is considering a $220M commitment to an actively managed fixed-income strategy designed to provide broad market exposure while emphasizing risk mitigation, according to materials discussed at a recent board meeting.
The proposed allocation would be a tailored version of Fidelity Institutional Asset Management’s Broad Market Duration Strategy, which invests across U.S. treasuries, securitized and asset-backed debt, and investment-grade corporate bonds. The strategy aims to generate consistent risk-adjusted excess returns while maintaining a duration profile close to its benchmark.
According to the materials, the strategy relies primarily on active sector allocation and security selection to generate excess returns, with duration positioning expected to play a more limited role. It would mainly leverage treasury securities to manage overall portfolio duration, though the strategy can also be used to “express active views on the shape of the yield curve.”
The investment process combines top-down macroeconomic analysis with bottom-up security research, noted the materials. Portfolio construction would begin with an assessment of the economic environment and market risks, informed by Fidelity’s macro views and sector specialists. Relative-value analysis would then be used to determine sector allocations, avoiding structural bias toward any single sector, and then final portfolio decisions would be driven by security selection and ongoing oversight.
KCERA’s materials emphasized that the strategy is designed to remain broadly benchmark-neutral over time, prioritizing consistency and capital preservation while seeking incremental alpha through active management rather than directional rate bets. The strategy also incorporates a structured risk-management framework intended to support consistent performance across market cycles. Fidelity uses a proprietary risk model to forecast expected tracking error and to provide visibility into how individual positions contribute to overall portfolio risk.
While the strategy does not impose formal limits on active sector exposures, portfolio construction accounts for each sector’s contribution to overall duration. Active duration positioning is constrained to within roughly one-third of a year relative to the benchmark, with tighter limits at the key-rate duration level. The framework targets a tracking error range of 1% to 1.5%, underscoring an emphasis on controlled active risk.
Adherence to these risk parameters has been central to the strategy’s ability to deliver consistent outperformance and attractive risk-adjusted returns, particularly during periods of heightened market volatility, noted the materials.
KCERA’s proposed commitment would fulfill the majority of the fund’s 4% allocation to core fixed income, which is benchmarked to the Bloomberg Barclays U.S. Aggregate Bond Index. The allocation would be funded using proceeds from the termination of an existing PIMCO Core Plus strategy and a partial redemption from the Mellon Aggregate Bond Fund. KCERA would retain exposure to the passive Mellon vehicle to complete the remaining portion of its core fixed-income allocation.
As of Sept. 30, 2025, KCERA’s fixed income portfolio had a market value of $1.39B , including $701M, or 10.5% of total plan assets, allocated to core fixed income.
