Rate cuts are approaching faster and faster on the horizon, with this week’s cool CPI print adding fuel to the fire. With the potential for imminent rate cuts growing, investors might want to revisit their fixed income holdings. Bonds have returned to relevance in the last year and a half with a live rates market, but major cuts could have an impact. That’s where an active fixed income ETF like SMTH comes in.
See more: ETF of the Week: ALPS O’Shares U.S. Small-Cap Quality Dividend ETF (OUSM)
The ALPS/SMITH Core Plus Bond ETF (SMTH) launched just this past December. In that time, however, the strategy has already reached more than $800 million in AUM. Charging 59 basis points (bps), the active fixed income ETF looks to provide a high level of current income as well as capital appreciation.
An Active Fixed Income ETF to Watch
The fund evaluates individual debt securities with a bottom-up approach. SMTH considers a range of securities including corporate and convertible bonds, commercial and residential mortgage-backed securities, government notes, and more. Its active management takes a close look at factors like liquidity, duration, call risk, and more.
That active approach could play a key role in the months ahead. Inherently, active fixed income ETF funds have advantages over passive rivals. Bond funds have to adapt to maturities and rolling bonds to keep a particular average maturity or effective duration.
What’s more, if 2024 has taught any lesson so far, it’s been that the Fed will move when it decides to move. While this week following the cool CPI print, investors may be chomping at the bit for 50 or even 75 bps of cuts this year, the Fed could swerve. The central bank could cut by 25 or, even, not cut at all.
SMTH has returned 4.2% since inception, significantly outperforming the Bloomberg U.S. Aggregate Bond Index. For those looking for a little more activity and flexibility in their fixed income holdings, the active fixed income ETF could appeal.
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