Golden Age for Active Bond ETFs?

Originally published on May 22, 2024

Interest in active fixed income products has swelled in 2024, as credit spreads narrow and the Federal Reserve holds fast to a “will they, won’t they” game of trimming interest rates. Active fixed income ETFs have seen north of $11 billion in net inflows this year and $27 billion globally.

Right now, the bond market is perfectly poised for expansion among actively managed ETFs. Advisors are seeking out sharper tools to fine-tune credit quality, duration risk, and exposure on a more granular level. Their hope is to generate incremental income and build a ballast for their overall portfolio.

Even so, there’s still a huge untapped market for issuers. A recent Capital Group survey noted that less than 4% of all managed assets are parked in active fixed income ETFs, and only 12% of fixed income ETF assets are active.

The trend towards active fixed income is not only about converting more mutual funds into ETFs. It is also about leveraging ETFs to showcase their fixed income capabilities in an active wrapper. It offers a chance for the largest funds to bring their best and brightest managers into the ETF world.