As investors consider ways to adapt their fixed income portfolios in a shifting market environment, some may look to actively managed bond exchange traded funds that are more capable of navigating the changing tides.
“Actively managed funds offer investors the opportunity to outperform the market, while most index funds underperform the market net of fees,” according to a Fidelity research note. “Even seemingly small amounts of excess return can lead to significantly better outcomes for shareholders, while prolonged periods of outperformance may lead to dramatically improved results through the compounding of excess returns.”
Fidelity Investments argued that there are four reasons to consider active bond ETFs for a diversified portfolio: a focus on returns after fees, well-informed managers, more than just a bond index, and additional tools to generate returns and manage risks.
Successful active fund managers have the flexibility and proven skill set to outperform passive funds over time. For instance, managers can take credit fundamentals into consideration in accessing a bond’s risk, which can better gauge the value of a debt security.
Bond managers are also more informed than the average investor as they consider a broad spectrum of potential investments and utilize research analytics to differentiate sectors to look for the most promising picks.