Key Takeaways
Actively managed fixed income U.S. listed ETFs have gathered a 17% share of category net inflows thus far in 2021, despite active ETFs overall managing just 4% of industry assets.- PIMCO manages three of the four active fixed income ETFs with the longest trading histories and recently expanded its lineup with a new active municipal bond product.
- While ultra-short-term products like PIMCO Enhanced Short-Maturity ETF (MINT) and JPMorgan Ultra-Short Income ETF (JPST) are larger, recent demand has been strong for higher yielding offerings like First Trust Senior Loan ETF (FTSL), JPMorgan Disciplined High Yield ETF (JPHY), and SPDR Blackstone Senior Loan ETF (SRLN).
Fundamental Context
Actively managed ETFs continue to gather assets during 2021. While many investors still think of ETFs as tracking a common benchmark like the S&P 500 or the Bloomberg Aggregate Bond Index, active ETFs now represent 4% of the $6.8 trillion in U.S. listed ETF assets and had gathered 11% of the $625 billion of record inflows year-to-date through September 16, according to CFRA’s ETF data. Active fixed income ETFs manage $126 billion in assets, narrowly more than the $123 billion for active equity ETFs. While the supply of active equity ETFs has grown this year, due in part to new semi-transparent products and mutual funds converting to ETFs, active fixed income ETFs have had a strong year too. Indeed, bond picking products pulled in $24 billion, equal to 17% of the category’s cash haul.
Many turn to active managers, as the bond market is large and complex. Fixed income ETFs have been demonstrating diversification, liquidity, and tax efficiency benefits to those used to buying individual bonds or using mutual funds. However, rather than investing in an index tracker, some investors have looked to active ETFs, seeking downside protection through ultra-short offerings or above-average income with core, high yield, or senior loan ETFs that have the benefit of a team sorting through the universe for mispriced securities.
Unlike managers of index-based ETFs that need to maintain their credit or duration attributes, managers of active ETFs have discretion to own both investment-grade and high-yield bonds or shift the portfolio’s interest rate sensitivity based on the macroeconomic outlook.
PIMCO was an early entrant into the ETF market and remains a key provider. The firm is among the largest managers of active fixed income mutual funds and has three of the four oldest and currently trading active fixed income ETFs. MINT and PIMCO Intermediate Municipal Bond ETF (MUNI) launched in November 2009 and were soon followed by PIMCO Short Term Municipal Bond ETF (SMMU) in February 2010. A notable earlier entrant is Invesco Ultra Short Duration ETF (GSY), which came to market in 2008. PIMCO, which manages $21 billion of active fixed income ETF assets, expanded its lineup gradually in the past decade with taxable, core, multi-sector bond focused PIMCO Active Bond ETF (BOND); taxable, short-term focused PIMCO Low Duration ETF (LDUR); and most recently with a tax-free, core-plus offering, PIMCO Municipal Income Opportunities Active ETF (MINO), which launched in September.
First Trust, JPMorgan, and State Street Global Advisors also have a strong active fixed income ETF franchise. JPMorgan runs JPST, the largest active fixed income ETF, with $18 billion in assets, but $7.6 billion SRLN has gathered the highest net inflows in 2021, with $5.3 billion. Other popular active fixed income ETFs this year include FTSL, First Trust TCW Opportunistic Fixed Income ETF (FIXD), JPHY, Quadratic Interest Rate Volatility and Inflation ETF (IVOL), and Vanguard Ultra-Short Bond ETF (VUSB).
Conclusion
There are now more than 150 actively managed fixed income ETFs available from several dozen providers, and more are on the way from Capital Group, Federated, and others. The active equity ETF universe has been garnering much of the attention as of late, given the success of ARK, the conversions of mutual funds to the more tax-efficient ETF structure, and the recent launch of semi-transparent equity ETFs. Yet, CFRA thinks there is significant growth potential for active fixed income ETFs in the years ahead, and we remain positioned to help investors sort through the universe and understand the risk and reward potential these funds provide.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.
