On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the T. Rowe Price QM U.S. Bond ETF TAGG with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.Chuck Jaffe: One fund, on point for today. The expert to talk about it.
Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with the help of Todd Rosenbluth. He’s the head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to make yourself a better investor in ETFs.
Todd Rosenbluth it’s great to chat with you again!
Todd Rosenbluth: It’s great to be with you, Chuck.
Chuck Jaffe: Your ETF of the Week is…
Todd Rosenbluth: The T. Rowe Price QM U.S. Bond ETF. Ticker TAGG. Tag!
Chuck Jaffe: Tag! TAGG, the T. Rowe Price QM U.S. Bond ETF. Now, QM in this case stands for quantitative management. That’s a tag that T. Rowe Price puts on its funds when they’re being managed quantitatively. But TAGG — well, why is TAGG it this week?
Todd Rosenbluth: You know what? That’s just fun to say. TAGG is it this week for us because active fixed income remains a hot area for folks to invest in. This is an active fixed income ETF, a core investment-grade bond ETF with exposure to investment-grade corporates and some Treasuries. We can get into that a little bit further. Strong performance in its three years.
It’s outperforming the aggregate bond index on a three-year basis, on a one-year basis year-to-date. And it’s relatively cheap at just 8 basis points. So, we think now remains a good time to be looking at active fixed income strategies. And this is an under-the-radar ETF. It’s still relatively small, under $100 million. We think more investors and advisors need to take a closer look.
Chuck Jaffe: I want to dig in just a little bit deeper. Because why at this time — rate cycle starting — we think technically it’s not a rate-cutting cycle until you at least have the second cut. But, the first cut was bigger than expected. We are expecting more cuts. So, why particularly active management in the bond space as opposed to index managed?
We all understand, theoretically, the benefits of active management. But why in these times particularly would you be telling someone to get active rather than passive in the bond space?
Todd Rosenbluth: Well, investors are telling us they want to be active in this space. So, we’re offering an idea or two. We’ve offered a few active fixed income ETFs. But this is an unusual cycle that we’re in, or time period. You’re right, the Fed cut interest rates by 50 basis points. And yet, we’ve seen bond yields spike higher in the last few weeks.
There is some uncertainty about the next move by the Fed when they meet heading into the election, and then heading into the end of the year, and then 2025. There’s a lot of uncertainty. I’m not skilled enough. Probably many listeners and watchers are not skilled enough to fully follow the bond market and what the next moves are going to be.
That’s why investors and advisors are increasingly turning to active fixed income. And then with active fixed income versus an index-based product like the aggregate bond index, they can sort through the universe to find the best reward for the risk they’re taking on. So TAGG, the T. Rowe Price ETF, is overweighted towards corporate bonds. They see greater opportunity there as opposed to Treasuries, which is heavily what you’d find within an aggregate bond index.
They’re sorting through the universe and choosing among the credit qualities to find the opportunities. We’ve seen active fixed income ETFs remain popular in 2024, and we think heading into 2025, with the uncertainty of interest rates, they’re going to remain popular. And T. Rowe Price: strong manager. Many people are familiar with them, even if they’re not familiar with this ETF.
Chuck Jaffe: We should point out, in case anybody hasn’t figured it out yet. When we’re talking about TAGG, the T. Rowe Price QM US Bond ETF, it’s the TAGG, the agg, right? Because it’s aggregate, it’s the U.S. Aggregate Bond Index that it goes after. That’s why it’s agg/TAGG.
All that said, about why you want active management. This is a quantitative fund. So, true quant managers, well they have a system that they follow. Do you particularly like quantitative management as a form of active? Does that have anything to do with the pick of this fund right now?
Todd Rosenbluth: So what I like is when it works and when it’s relatively cheap. And that’s happening in the case for TAGG. So, as I mentioned, it’s outperforming on a three-year, one-year, and YTD basis. Now, it won’t always do so. And what’s helping it is that this is an ETF that charges just 8 basis points. I want to repeat myself — 0.08%.
That’s indexlike, but in the benefits of active management. Now, you’re right: It’s quantitative. So that will help to keep the costs relatively low. Keeping costs relatively low should help the fund have a chance to perform well versus an index-based strategy. If the system is working, I like the system.
Chuck Jaffe: As for the role that this fund plays, we are talking about the US Aggregate Bond Index. Investment-grade bond market.
if you’ve got a bond fund, you’ve got a lot of this, most likely. So, where does this fit into somebody’s portfolio? Obviously, if all they have is an index fund, this is your active managed component. But if they’ve already got an active bond ETF, is this one so much greater that you really want to weigh in on changing, or it’s mostly about making sure that space is covered? If you don’t have it covered, here’s a good pick.
Todd Rosenbluth: So, I think there are a number of different use cases here. We think we’re finding advisors, investors pairing an active core strategy with an index-based one. Like, in this case, you get to keep the cost low for both cases. But you tap into that active management capability and you can tilt away from the Treasury-laden US Aggregate Bond Index.
If you already have an active core bond ETF, and again, many folks have an active core bond mutual fund, so this could be an alternative to the mutual fund. But if you already have an active core bond ETF, hold this up side-by-side with TAGG and see if it makes sense. Is it different? Is it better? You shouldn’t make a change just for the sake of making a change and just because it might be a little bit cheaper.
Make sure that the fund you have fits into your portfolio, fits into your objectives. We think TAGG from T. Rowe Price is a strong fund. Low cost, strong-performing, a quantitative approach to fixed income that’s tilted currently more towards corporate bonds. It’s worthy of a close look.
Chuck Jaffe: It is indeed. That’s what we’ve given it today. It is Tag, TAGG. The T. Rowe Price QM U.S. Bond ETF. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff, as always. Talk to you again next week.
Todd Rosenbluth: I’ll tag you next time!
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I’m Chuck Jaffe. And I’d love it if you wanted to check out my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find great podcasts. Now, if you’re searching for great exchange traded funds, make sure you look no further than VettaFi.com, where they have all the tools you need to be a better investor. There on Twitter or X at @Vetta_Fi
Todd Rosenbluth, their head of research, my guest, well he’s on X as well. He’s at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Follow along on your favorite podcast app so you don’t miss an episode. And we’ll be back with another great ETF for you to consider next week. So, we hope we’ll see you again then.
And until then, happy investing everybody!
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