2025 is fully in gear, and with it, investors may be looking at refreshing their fixed income portfolios. What’s more, with the Fed pausing rate cuts for now, many investors may want to adjust for a year of mostly steady rates. ETFs provide a variety of options to make those adjustments, with a variety of flavors available for investors of all risk tolerances. The following three active fixed income ETFs, particularly, may be worth considering as compelling tools to approach the current moment.
See more: Bull vs. Bear: Small-Caps, Foreign or Domestic?
First off, it may be important to revisit the case for active versus passive fixed income ETFs. When passive bond funds try to replicate bond indexes, they often struggle. Passive funds’ lack of flexibility causes problems when bonds are called early, when trying to roll contracts, or simply to adjust to circumstances. The strict nature of some indexes can limit managers’ capacity to recreate the “spirit” of the fund’s strategy.
Active fixed income ETFs, by contrast, offer close scrutiny of issuers’ credit ratings, the bonds themselves, and the flexibility needed to maintain certain average maturities. What’s more, active management can help more efficiently seek out additional income to boost standard bond allocations.
Active Fixed Income ETFs: Current Income, Yield & Adaptability
Consider, for example, the Avantis Short-Term Fixed Income ETF (AVSF). Actively managed, the fund charges just 15 basis points (bps) — low for an active fund — to invest in short duration bonds. That short-term approach, which could appeal amid stubborn inflation and steady rates, targets U.S. and non-U.S. issuers. Its managers scrutinize the space for bonds with higher expected returns, assessing metrics like duration, currency, industry sector, and more.
The American Century Short Duration Strategic Income ETF (SDSI), meanwhile, actively invests in short duration fixed income opportunities to boost income. Charging 33 bps, it specifically looks to craft an average weighted duration of three years or shorter. SDSI’s current income can provide a meaningful boost to investors, especially those at or near retirement, amid market uncertainty. That strategy has helped the fund outperform the Bloomberg U.S. 1-3 Year Government/Credit Bond Index over the last year, per American Century Investments data.
Finally, the American Century Multisector Income ETF (MUSI) could also offer a useful tool in the active fixed income ETFs space. MUSI takes a multisector — rather than explicitly short-duration — approach to adding current income. For a 36 bp fee, it actively invests in a global bond portfolio pursuing high yield and current income. That includes investing in bank loans and high yield opportunities on top of investment-grade current income.
Together, the trio of active fixed income ETFs might be worth swapping in for more staid, index bond strategies. With their active approach to current income and short-term opportunity, they could offer some compelling tools to kick-start 2025.
For more news, information, and analysis, visit the Core Strategies Channel.
