How can asset managers outperform the benchmark when investing in T-Bills?

The ability of asset managers to outperform a benchmark when investing in Treasury Bills (T-Bills) often hinges on the effective use of duration management and derivatives. Duration management involves adjusting the sensitivity of the bond portfolio to changes in interest rates, which can be particularly important given the nature of T-Bills, which are short-term debt instruments. By strategically managing the duration, asset managers can mitigate interest rate risks and enhance returns.

In addition, derivatives can be utilized to hedge against potential risks or to enhance yields without the need for significant capital outlay. For example, by using interest rate swaps or futures, asset managers can adjust their exposure to interest rate fluctuations, thereby positioning themselves to outperform the benchmark.

The other options do not directly address the specific strategies that can lead to outperformance in the context of T-Bills. Investing in more diverse assets may enhance returns in general, but T-Bills are already a low-risk category where diversification might not provide the necessary edge against benchmarks. Focusing solely on long-term investments doesn't apply well to T-Bills, which are typically short-term instruments. Lastly, while reducing management fees may lead to better overall performance from a cost perspective, it doesn’t directly relate to the strategic performance of T-Bills within the context