The White House’s tariff efforts have spooked investors in 2025. Domestic equities are therefore faltering to start the year. With the S&P 500 sporting a YTD loss, many investors have sought comfort in the form of bonds. As highlighted by a YTD gain of 1.63% by the Bloomberg US Aggregate Bond Index, fixed income is delivering refuge for wary equity investors. That could signal opportunity via the marriage of active management and fixed income. Enter the ALPS/SMITH Core Plus Bond ETF (SMTH).
To start 2025, SMTH is performing in line with the “Agg.” But active management can be conducive to improved returns in the fixed income space. So it’s possible that as 2025 progresses, SMTH could more rapidly unearth credit and interest rate opportunities relative to passive peers. That could support a better return profile.
Why SMTH Matters Now
Following last November’s presidential election, market participants were largely bullish on equities. For a time, that thesis was validated. However, animal spirits have been rapidly damped by tariff uncertainty. This has prompted advisors and investors to evaluate fixed income ideas, including SMTH.
“2025 started on a strong note for US equities. Stocks rose throughout January, with the US market index peaking at a 4.7% year-to-date gain on Feb. 19,” noted Morningstar analyst Gabe Alpert. “Since then, it’s slipped steadily, with recent volatility following developments in US trade policy. President Donald Trump announced his intentions to implement 25% tariffs on autos, pharmaceuticals, and semiconductors in a press conference on Feb. 18.”
Though bonds don’t outperform stocks over the long term, bonds and ETFs such as SMTH, broadly speaking, are performing admirably this year. They’re delivering on the promises of portfolio diversification and buffering against equity market volatility.
Looked at differently, provided investors aren’t expecting equitylike returns, ETFs like SMTH can fulfill the objective shelter from turbulent equity markets while delivering desirable income streams. SMTH sports a trailing 12-month yield of 4.45%, or 73 basis points ahead of the Agg.
“Fixed income has been providing some ballast and hedging benefits through the recent market turmoil, displaying the traditional negative correlation between stocks and bond returns,” observed Dominic Pappalardo, chief multi-asset strategist at Morningstar. “While bonds have not rallied enough to offset the equity drawdowns—they rarely do—the benefit of investing in a diversified multi-asset portfolio has been evident.”
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