As investors well know, the first half of 2021 was tough to navigate when it came to fixed income exposure. 10-year Treasury yields surged in the first quarter.
However, active managers showed their mettle, with plenty outperforming their benchmarks – something many of their equity counterparts were unable to do in the first six months of the year.
“The trends in fixed income are the opposite of those in equities, considering that all bond segments had more than 50% of managers outperforming their benchmark in Q2,” writes Matthew Bartolini, head of SPDR Americas research.
Strength for active bond managers was accrued across a variety of strategies, including intermediate-term bond funds, municipal bonds, and specific municipal bond niches, among others.
“Intermediate core-plus managers have the highest rate so far in 2021, with 90% of managers outperforming and with an average excess return of 1.01%. These returns include active fixed income ETFs, a segment that has continued to grow assets,” adds Bartolini.
The one fixed income area where at least half of active managers did not beat benchmarks in the first half was emerging markets debt. That could be the result of managers holding dollar-denominated as the greenback turned higher, some unexpected rate hikes in some developing economies, or a rapid decline in commodities prices in the latter stages of the second quarter.
Fortunately for investors, another area where active fixed income managers are shining is in aggregate bond strategies, which are often among the most popular funds in this category due to their broad exposure. Moreover, that out-performance isn’t the result of taking on significant credit risk.
“The outperformance for core-plus mangers is likely due to the strong returns from credit markets, and how the benchmark (Agg) does not have a significant amount of credit weighting — and no below investment-grade exposure,” notes Bartolini.
Past performance isn’t a predictor of future returns, but with capital flowing into active ETFs of all stripes this year, it’s possible more issuers will test the waters with active bond funds.
For example, T. Rowe Price recently released plans for the T. Rowe Price Total Return ETF, T. Rowe Price QM U.S. Bond ETF, and T. Rowe Price Ultra-Short Term Bond ETF.
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