The first quarter was a trying period for fixed income investors. Some passive bond strategies disappointed market participants at the very time the asset class should have delivered on the promise of protection.
See more: Looking for REIT Winners? This ETF Has Them
To be sure, passive aggregate bond funds and other passive fixed income strategies didn’t deliver catastrophic returns in the first three months of the 2026. Still, broad-based disappointment among those products may be enough for more advisors and investors consider actively managed ETFs such as the ALPS/SMITH Core Plus Bond ETF (SMTH). SMTH can be viewed as an alternative to old guard aggregate bond funds. That status may be appealing in the current environment.
“Overall, the main US bond categories lost money—even inflation-protected Treasuries, whose rising rates can outweigh their inflation-adjustment benefits,” noted Morningstar’s Leslie Norton. “The worst performers were long-term core bonds, followed by high-yield bonds, as worries about the impact of artificial intelligence and the Iran war made investors risk-averse. That said, credit-sensitive portions of the bond market have been resilient, even with the amount of uncertainty hitting the financial markets.”
SMTH for the Long- and Short-Term
Advisors and experienced investors know that most fixed income categories should be viewed through the lens of long-term investing. SMTH certainly merits a place in that conversation. However, the ALPS ETF is also worth examining over the near-term, amid geopolitical tensions in the Middle East.
“Despite expectations that the war won’t last much longer, the short- and long-term impacts remain highly uncertain,” added Norton. “Where bonds go from here depends on how the balance plays out between inflation and slowing growth.”
Speaking of interest rates, active fixed income ETFs such as SMTH are potentially all the more appealing now. That’s because the Federal Reserve’s plans to cut interest rates this year remain very much in doubt. Bond markets already priced in odds of just one rate cut. Even that is jeopardized by higher oil prices, though, which are stoking inflationary pressures.
Translation: Active bond funds like SMTH can be more responsive to interest rates and related disappointments. That trait that may be advantageous as 2026 moves along. Another potential perk of SMTH’s active management is the possibility of capitalizing on credit opportunities. That’s worth noting at a time when corporate default rates are benign.
“Yet the credit markets, which are more focused on corporate defaults, have been relatively stable despite growth concerns. On March 30, the ICE BofA Corporate Index spread over Treasuries was at 0.91 percentage points, versus 0.86 when the war began. Meanwhile, the spread on the ICE BofA High Yield Index was 3.46 points higher than comparable Treasuries, versus 3.12 when the war began,” concluded Norton.
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