The Benefits of Active Fixed Income Investing | ETF Trends

More investors are turning to active management for their fixed income exposure. In a poll conducted by VettaFi, a third of respondents have more than half of their fixed income exposure tied to active management.

That’s because within fixed income, many more structures lead to inefficiencies, and therefore more opportunities. Additionally, the number of active fixed income managers that beat their benchmarks is quite high, which is also a plus.

See more: “Advisors to Up Allocation to Fixed Income ETFs Ahead of 2024

A Growing Number of Options

Vanguard’s senior fixed income specialist Dan Larkin said on a panel at VettaFi’s Income Strategy Symposium that he’s seen “a greater preference for active management in fixed income.” He also noted that there has been growing adoption of the ETF vehicle among investors.

“There’s a lot to choose from,” Larkin said during the panel on October 27.

Additionally, Larkin added that active strategies are used primarily to gain exposure to parts of the market that traditional indices can’t track.

Vanguard currently has one active fixed income ETF: the Vanguard Ultra-Short Bond ETF (VUSB). However, the investment giant plans to launch two similar ETFs at the end of the year. The Vanguard Core Bond ETF (VCRB) and the Vanguard Core-Plus Bond ETF (VPLS) are designed to provide clients with single-fund fixed income holdings broadly diversified across sectors, credit qualities, and maturities.

Vanguard’s Active Edge

Vanguard CEO Tim Buckley said that “the best way to evaluate” an active manager is to see if “they can tell you what their edge is.”

“What is their active edge? It has to be one that can’t be easily duplicated. You want one edge that nobody else has,” he noted at Exchange 2023.

To view this session and others from the Income Strategy Symposium, register for the on-demand replay.

For more news, information, and analysis, visit the Fixed Income Channel.