As expected, the Federal Reserve lowered interest rates by 25 basis points on Oct. 29, but the real market-moving news was commentary from Chairman Jerome Powell. Powell indicated that it wasn’t guaranteed the central bank would pare borrowing costs again in December. That flies in the face of predictions indicating the Fed was likely to lower rates three times this year (it’s done so twice) and at least another two times in 2026. As the Fed proves, there’s no such thing as a sure thing in investing, but advisors and investors can mitigate rate-related disappointment with actively managed fixed income ETFs such as the ALPS/SMITH Core Plus Bond ETF (SMTH).
The fast-growing SMTH is up 7.57% year-to-date. This is an impressive showing among aggregate bond strategies; it’s compelling relative to many of the passive alternatives in the category. SMTH’s year-to-date sturdiness could mitigate disappointment should the Fed not deliver another rate cut this year.
Active Advantages With SMTH
Many passive aggregate bond ETFs are homes to thousands upon thousands of bonds. By comparison, SMTH’s lineup, though still broad, is relatively focused. That’s a good thing and the result of the selectivity that accompanies active management.
“For one thing, there are far more bonds that investors can purchase than there are stocks. Bonds vary widely in terms of credit quality, duration, maturity, interest payments, and more,” noted Fidelity. “Even a group of bonds issued by the same company or government can have meaningful differences that may affect their prices and whether you may to want to own them or not.”
Yes, the largest bond ETFs are still passive funds, but as SMTH proves, there’s plenty of room active upstarts. The ALPS fund already has $2.2 billion in assets under management. This indicates awareness of the perks of active fixed income ETFs.
“Actively managed ETFs are especially well-suited to bond investing because bond markets are relatively large and inefficient compared with stock markets. This creates opportunities for active managers while the ETF structure delivers lower costs,” added Fidelity.
Indeed, SMTH has advantages not found with rival passive strategies. The ETF’s managers adjust duration, if needed, and capitalize on credit opportunities more rapidly than index-based competitors. All of these are points long-term investors should consider.
“They can draw on expert researchers and traders to sort through the unique characteristics of bond markets and discover attractive investment opportunities that passive strategies miss. The market price of a bond may not reflect its intrinsic value and active managers can buy bonds they view as underpriced and sell those they deem overpriced. Meanwhile, index managers must instead track index exposures with little regard to such fundamentals,” concluded Fidelity.
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