Investors are returning to fixed income after a historically bad year for bonds. Economic uncertainty combined with the Federal Reserve’s recent decision to raise interest rates by 25 basis points have served as huge tailwinds for the bond market. For the week ending March 24, U.S. fixed income ETFs accumulated $6.2 billion in assets, while U.S. equity ETFs saw $14 billion in outflows.
“After years of a low-rate environment, advisors are interested in learning about the income component to a bond’s total return, they’re not just looking at price return,” said VettaFi’s head of research Todd Rosenbluth in an episode of ETF Prime. “They’re wanting to get more insight into terms like duration and maturity that they’ve never needed to pay attention to in the last five, ten years.”
Rosenbluth added: “Because the Fed has raised rates… duration matters and I think advisors and investors are benefiting from a healthy slice to their fixed income portfolio.”
See more: “The Limits of Passive Fixed Income Investing”
The Rise of the Active Fixed Income ETF
ETF issuers are launching more actively managed funds as more investors accept the benefits of the ETF wrapper. Plus, amidst a high volume of market volatility and persistently high inflation, investors are seeking active management to guide their investments.
“Active ETFs are really starting to grow and become a more prominent part of the market,” said Tim Coyne, head of ETFs at T. Rowe Price. “There’s a lot of demand for quality active strategies.”
For fixed income investors looking for yield, it may make sense for some clients to pursue an active approach to their fixed income investments. After all, fixed income ETFs almost always have an element of active decision-making.
If passive management is like putting your car on autopilot, then active management is giving the manager the ability to grab the wheel. In addition, active managers with greater resources and greater scope benefit from economies of scale, which can often translate to better returns.
As part of its lineup of active exchange traded funds, T. Rowe Price offers a suite of actively managed fixed income ETFs, including the T. Rowe Price QM U.S. Bond ETF (TAGG), the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX), the T. Rowe Price U.S. High Yield ETF (THYF), and the T. Rowe Price Floating Rate ETF (TFLR).
“Active managers have the flexibility to take advantage of market volatility and add to favored positions when prices become more attractive,” Rosenbluth said.
T. Rowe Price has been in the investing business for over 80 years, conducting field research firsthand with companies, utilizing risk management, and employing a team of experienced portfolio managers carrying an average of 22 years of experience.
For more news, information, and analysis, visit the Active ETF Channel.