As Long Term Rates Rise, Eye Active Fixed Income

Have you checked your fixed income allocations recently? The bond market is changing as we scroll the internet’s endless feeds. Long-term rates have surged, with the 10-year U.S. Treasury note nearing a 5% yield. With long-term rates rising towards near 16-year highs, it may be worth taking another look at a fixed income portfolio. Specifically, it may be time to consider adding some active fixed income exposures via an ETF like the T. Rowe Price QM U.S. Bond ETF (TAGG).

Why look to an active fixed income ETF? Whereas indexed strategies stick to replicating a given universe or list of bond offerings, active strategies can mix it up. Active management already brings some potent advantages to fixed income, with experienced, active managers scrutinizing each opportunity. However, this particular moment may call for active more than normal, with long-term rates rising on top of the Fed’s existing plans for further hikes.

See more: “The Top 5 Active ETF Beating Rivals on Fees”

Active managers can then move in and out of various bond opportunities to craft a bespoke allocation that gets the best out of the broader bond market. TAGG, for example, actively invests in a wide variety of investment-grade bonds across broad maturities. Aiming for total return, it can invest in corporate and government debt as well as mortgage and asset-backed securities. Basically, this active ETF is designed to deliver a similar risk profile as the U.S. Aggregate Bond index while seeking to capitalize on the inefficiencies of passive fixed income benchmarks.

That broad approach allows managers to find the most appealing opportunities without indexed strategies’ constraints. TAGG also charges a very friendly fee compared to many other active ETFs’ fees. TAGG asks for just eight basis points (bps), which means getting fully active management at an index-like price point. With the bond situation suggesting some economic uncertainty and opportunities abounding in intermediate and long term bonds as long term rates rise, it may be time for a second look at the active fixed income ETF.

For more news, information, and analysis, visit the Active ETF Channel.