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In This Bond Market, It’s Good to Have Friends

BY | ETF Database
9:21 am ET 08/26/26 | 12 VIEWS
In more sanguine times, advisors and investors turn to bonds for portfolio diversification, income — and hopefully — some volatility reduction. However, things aren’t always easy in the fixed income market, and the current environment proves as much.New Federal Reserve Chairman Kevin Warsh is living up to his promise to cut down on expectation-raising chatter, while several Fed officials push for imminent interest rate hikes to fight inflation. Oh yeah, and 30-year Treasury yields recently hit their highest levels in 19 years. So with all that in mind, it’s arguably a fine time for advisors and investors to consider the benefits of actively managed fixed income ETFs. “Active bond ETFs may make sense in today’s dynamic bond market because they can respond to market dislocations and evolving risks in real time,” noted Greg Torretti of American Century. “For investors, the ability of portfolio managers to adjust duration, credit exposure and sector allocations as interest rates, inflation and economic conditions change gives them more opportunities to capture attractive income and total return potential.”Active AdvantagesPassive aggregate bond ETFs often feature low fees and portfolios comprised of thousands of bonds, but those benefits don’t insulate investors from drawbacks. For example, the broad swath of passive aggregate bond ETFs are heavily allocated to Treasuries, implying that there’s some level of duration risk. Additionally, a slew of other passive bond ETFs, particularly those addressing corporate bonds, are often heavily tilted toward the biggest issuers and don’t adequately address some investors’ concerns about credit quality. On the other hand, active bond managers can mitigate some of those issues while bringing fresh benefits to the fixed-income table. “Active managers seek to uncover value across the fixed-income spectrum, including the new-issues market,” added Torretti. “They can invest in places that popular market indices often ignore, such as smaller and underfollowed sectors, securities, issuers and countries. Additionally, active managers are free to exit securities they believe have reached their valuation potential, while passive indices must continue holding them if they’re a benchmark component.” Active bond ETFs can also offer end users the possibility of better total returns and diverse income streams — two traits that are always fashionable. “Active fixed-income ETFs can help by evaluating and securing diversified sources of income in all interest rate environments. They offer the flexibility to actively adjust sector exposures and credit quality to help enhance yield and return potential and actively manage risk,” concluded Torretti. American Century’s fixed income ETF roster includes the American Century Diversified Municipal Bond ETF (TAXF ), the American Century California Municipal Bond ETF (CATF C+), and the American Century Diversified Corporate Bond ETF (KORP B-). For more news, information, and analysis, visit the Fixed Income Content Hub.

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