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At the end of last month, T. Rowe Price launched three new additions to their lineup of actively managed funds — the first fixed income ETFs the firm has offered, as laid out in a white paper.
The previous five ETFs were all based in equities following a variety of investment strategies; the introduction of the T. Rowe Price Total Return ETF (TOTR ), the T. Rowe Price QM U.S. Bond ETF (TAGG ), and the T. Rowe Price Ultra Short-Term Bond ETF (TBUX ) marks the first time that the firm has transitioned their fixed income strategies from mutual funds into an ETF wrapper.
“Fixed income exchange‑traded funds (ETFs) are a natural evolution of T. Rowe Price’s product offerings, providing access to our active fixed income management expertise in a versatile format that provides all of the benefits of ETFs,” wrote the authors of the paper.
The benefits of using an ETF are numerous and include the convenience of trading anytime, the low-cost structure when compared to mutual funds, and their tax efficiency in trading. An ETF’s ability to trade on an exchange at any point during the day while carrying a basket of securities within a security allows for diversification and flexibility and lets investors respond to changing market conditions as they happen.
ETFs tend to cost less than their mutual fund counterparts because they typically have more limited operating expenses, reporting, and client services. The ETFs that T. Rowe Price offer all have a unitary fee structure, which means that they charge a single fee to cover every expense instead of subdividing the fees into the management fee and other expenses. They are also typically able to reduce capital gains incurred during trading activity, thereby making them more tax efficient than mutual funds.
“Our ETFs benefit from the investing expertise of our actively managed strategies in addition to the advantages that the ETF wrapper provides,” said the authors. By combining all of these advantages, investors can now pursue fixed income investments with T. Rowe Price, an area that they view active management to really shine in within a market that is still producing historically low yields.
The three fixed income ETFs are all managed by the same investment teams that use the same strategies for the mutual fund counterparts. The global team of credit analysts from the firm is involved in the security selection of all fixed income portfolios for the firm. The mutual funds and ETFs can carry slight differences, reflecting different performances at times.
“Making our time‑tested fixed income strategies available via actively managed ETFs is one more way that we are delivering on our commitment to provide our investment management capabilities through products and vehicles that best meet the needs of our clients,” the authors wrote.
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