One of the key themes that emerged from discussion at the recent ETF Exchange conference in Miami was the return of bonds. That said, the return of bonds hasn’t necessarily been reflected by recent returns. The Bloomberg U.S. Aggregate Bond Index (BBUSATR), which offers exposure to investment grade bonds, has disappointed over the last month per YCharts. In its place, investors may want to eye active fixed income ETFs.
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The AGG, a key benchmark for fixed income broadly in the U.S., has returned -0.8% over the last month. Its one year return has come in modestly better, returning 3%. Still, with fixed income offering all kinds of opportunities right now, investors may want a little more “oomph.” Active ETFs could be part of the solution, offering advantages over both active mutual funds and passive ETFs in the same area.
Active mutual funds remain a very popular route into fixed income. Active fixed income ETFs can outdo them on certain fronts, however. They often offer more liquidity and easier tradability than mutual funds do. Their transparency, meanwhile, can make them straightforward vehicles for advisors to explain to clients.
The Role of Active Fixed Income ETFs
When compared to passive ETFs, meanwhile, active ETFs can also appeal. Active managers bring tighter scrutiny, seasoned management, and deep analysis to bond opportunities. Active strategies also offer more flexibility and broader remits for managers to reach more quickly than index-following ETFs can.
The AGG offers a consistent benchmark for fixed income investors. However, with the index disappointing, and subject to volatility, active routes int the space can appeal. A strategy that can adapt to Fed news and take deep looks at bonds could make for a worthy addition to portfolios. T. Rowe Price, for example, offers active fixed income ETFs like the T. Rowe Price U.S. High Yield ETF (THYF) that may be worth watching.
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