Shifting Bond Outlook Calls for Active Approach

As 2024 kicks off, investors may be looking to refresh their fixed income holdings. The Fed had signaled quite a bit that 2023 would see a higher-for-longer rate regime.

However, with 10-year yields having fallen quite a bit last month amid rising anticipation of rate “cuts,” instead, investors may be wondering where to go. It may be time to consider an active approach to address that shifting bond outlook via active ETFs, for example, which can adapt quickly to that moving landscape.

Active ETFs had a strong year in 2023. The category of ETFs picked up a significant amount of flows relative to their AUM, with active ETFs also contributing nearly 75% of total ETF launches in 2023. With 2024 offering continued uncertainty, particularly with interest rates, active fixed income ETFs may play a significant role this year.

“See more: Active Investing for Geopolitical Risks in 2024

Specifically, an active ETF with a wider remit across the fixed income category can particularly appeal. For example, an active strategy that looks across the broad bond space in the U.S. empowers its managers to find the best opportunities across multiple subsectors. For the 2024 bond outlook, then, the T. Rowe Price Total Return ETF (TOTR) may stand out for curious investors.

Play the Shifting Bond Outlook With TOTR

TOTR aims to provide diversified exposure to U.S. fixed income offerings, from government debt to corporate bonds, bank loans, and mortgage-backed securities. The ETF can also invest in securities of any maturity, which can be particularly useful as the yield curve fluctuates this year. Unlike passive index ETFs, TOTR has the latitude to hold out-of-benchmark positions and the flexibility to overweight and underweight bond duration, providing multiple levers to help actively manage interest rate risks.

TOTR charges a 31 basis points fee for its approach, with the strategy set to hit its three-year ETF milestone in September this year. The strategy has returned 6.6% over the last three months, which has helped it outperform both its ETF Database Category and FactSet Segment averages.

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