An active manager could add value to a bond fund and are more quick to react to market changes. In comparison, the widely observed Bloomberg Barclays U.S. Aggregate Index has seen duration or rate risk increase 30% since 2007 and yields decline about 30% over the same period. Basically, passive bond investors are exposed to greater rate risk and getting paid less for that higher risk.
Investors can look to actively managed bond ETFs in this changing market environment. For example, the PIMCO Active Bond ETF (NYSEArca: BOND) is one of the largest actively managed exchange traded funds and the management style could serve fixed income investors well as the Federal Reserve continues boosting interest rates. BOND shows a 5.65 year effective duration and a 3.72% 30-day SEC yield.
PIMCO’s active strategies performed well when rates increased. Looking at returns since the peak of the 10-year rate in July 2016, BOND exhibited a 1.47% total cumulative return, compared to the -1.49% dip in the Agg.
Beyond a fixed-income core holding like BOND, fixed-income investors can also supplement with less rate sensitive strategies like the PIMCO Low Duration Active ETF (NYSEArca: LDUR). LDUR has a short 1.06 year duration, so a 1% rise in interest rates would only translate to about a minimal 1.06% decline in the fund’s price, and it shows a 3.39% 30-day SEC yield.
Additionally, the PIMCO Enhanced Short Maturity Active ETF (NYSEArca: MINT) can provide additional yield beyond cash. MINT is meant to be used as an incremental step outside of the money market funds. Investors would use the active ETF for capital preservation or to take a defensive view on the market. MINT shows a 0.31 year duration and a 2.67% 30-day SEC yield.
Financial advisors who are interested in learning more about fixed-income investments can watch the webcast here on demand.