Active Fixed Income ETFs Grow As Investors Navigate Uncertain Bond Market

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Given these challenging market dynamics, advisors are adopting active management in the fixed income arena to help make their portfolios more resilient, and their investment vehicle of choice is increasingly an ETF.

Financial advisers are realizing that ETFs are no longer just about gaining passive exposure to beta. On the contrary, active ETFs provide investors with exposure to bond managers experienced in managing complex bond portfolios in various market environments. This is particularly important today, as the direction of interest rates remains uncertain as the risk of inflation increases.

Cost is another key consideration that shapes portfolio holdings. As investors move to actively managed fixed income ETFs for their transparency, liquidity and flexibility, they are also attracted by their low fees. The median net expense ratio for an actively managed fixed income ETF is 0.39%, which is significantly lower than that of actively managed fixed income mutual funds (0.65%).

As the end of the year approaches, a time when many investors are reaping tax losses, 2021 could be ripe for some to take losses on fixed income. A recent analysis by our SPDR research team found that about four in five fixed income ETFs have suffered price losses since the start of the year.

This performance, coupled with the potential for tax increases in the not-so-distant future, makes it even more important for investors to look for losses wherever they are in a portfolio. Specifically, advisers may want to take this opportunity to take losses in fixed income securities and rebalance portfolios with a preference for actively managed bond ETFs.

Going forward, we anticipate continued demand for actively managed fixed income ETFs as many advisors remain concerned about balancing their clients’ income goals with significant interest rate risk in the market. . The low interest rate environment should also continue to support the growth of active fixed income ETFs, as investors look to keep more of what they earn. Active approaches may be able to meet this need, with the ability to rotate between higher yielding market sectors while also managing the overall risk of the portfolio.


Allison Bonds is Head of Private Wealth Management at State Street Global Advisors.


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