Final answer:
You can estimate the approximate duration of a fixed-income fund empirically by observing how the fund's value changes in response to interest rate movements, using this to gauge the fund's price sensitivity and average time to repayment through cash flows.
Step-by-step explanation:
To estimate the duration of a fixed-income fund empirically without knowing its holdings, you would need to analyze the fund's price sensitivity to changes in interest rates.
This could involve observing the fund's historical price changes in response to market interest rate movements. For example, if the interest rates increase by 1%, and the fund's value decreases by a certain percentage, you could use this information to approximate the fund's duration.
The duration reflects the price volatility and effectively measures the average time it takes for an investor to be repaid the bond's price through its cash flows.
Please note, this empirical approach provides a rough estimate and may not be as precise as knowing the exact holdings and calculating the weighted average maturity or exact duration.