With inflation on the rise, equity markets continuing to be choppy, and the Federal Reserve looking to raise rates this year, fixed income is starting to gain attention again, as is active management.
Based on the data, this isn’t surprising. During 2020 and 2021, when markets were the most volatile they’ve been in decades, less than half of nearly 3,000 active funds outperformed their average passive counterparts in the 12 months through June 2021, according to data from Morningstar. CNBC quotes Ben Johnson, director of global ETF research at Morningstar, as saying: “Roughly half beat, and half lagged. It was what you would expect from a coin flip.”
Meanwhile, a report from Guggenheim Investments shows that while passive equities strategies have generally outperformed active managers, active bond managers have largely outperformed passive fixed income strategies.
Over the past 10 years, the average active large-cap equity fund manager has underperformed the S&P 500 86% of the time. In contrast, over the same 10-year period, the average active intermediate-term bond fund manager outperformed its benchmark, the Bloomberg U.S. Aggregate Bond Index, 59% of the time.
“Risk mitigation is the real advantage of active fixed-income management,” the Guggenheim report states. “The opportunity set of investments outside of the fixed-income benchmark index, and the ability of managers to dial up or dial down risk, are not options for a passive strategy.”
T. Rowe Price offers three actively managed fixed income ETFs: the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX), and the T. Rowe Price QM U.S. Bond ETF (TAGG).
TOTR seeks to maximize total return through income and, secondarily, capital appreciation. It combines all-weather portfolio construction techniques with tactical market insights to generate income and attractive risk-adjusted returns across market cycles. TOTR has a net expense ratio of 0.31%.
TBUX, meanwhile, seeks a high level of income consistent with low volatility of principal value. It intends to provide a high level of income while minimizing principal volatility by using a broadly diversified portfolio composed of shorter-term government, investment-grade corporate, and securitized bonds. TBUX has a net expense ratio of 0.17%.
TAGG seeks to provide a total return that exceeds the performance of the U.S. investment-grade bond market. It uses its modest tracking error budget to seek to outperform the Bloomberg U.S. Aggregate Bond Index on a net of fee basis. TAGG has a net expense ratio of 0.08%.
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