Why 2022 Could Be an Even Better Year for Fixed Income Active ETFs

Last year was a record year for ETFs, with net inflows of $910 billion into U.S.-listed ETFs, and it set a benchmark that will be hard to beat in 2022. Equity ETFs brought in the lion’s share of flows for the year at $692 billion, which is no surprise given the number of record closes for the major U.S. exchanges last year.

However, with the tide shifting in the latter half of the year, active ETFs saw an increase in flows, and the trend is expected to continue into 2022, particularly within the fixed income space, believes Todd Rosenbluth, head of ETF and mutual fund research at CFRA.

Fixed income ETFs garnered $207 billion in flows in 2021, nearly the same amount as 2020. Given the inflationary pressures in the latter half of the year and a Fed that turned very hawkish at the end of the year, inflows holding steady within a space experiencing a variety of pressures isn’t something to shrug at.

Despite losses within bond investment, actively managed fixed income ETFs were able to navigate the downturn with greater success than the broad indexed bond funds. Many of the major fixed income ETFs were able to hold losses at less than 1% for the entire year, while the major passive fixed income ETFs such as the iShares Core Aggregate Bond ETF (AGG) lost 1.93% in 2021, with others reflecting losses greater than 2%.

Active management fixed income ETFs also ended the year with 11% of the total assets within the fixed income ETF space but brought in 14% of the inflows. This is a reflection of an increasing pivot by investors to active management in inflationary times and with looming interest rate increases at the forefront of bond investors’ minds.

“We think investors will further embrace active ETFs in 2022 ahead of a more hawkish Federal Reserve,” Rosenbluth predicts in a communication to investors.

Active management firm T. Rowe Price offers several ETF options within the bond space, including the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price QM U.S. Bond ETF (TAGG), and the T. Rowe Price Ultra Short-Term Bond ETF (TBUX).

The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.

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