Fixed income investors looking to the benefits of active management in market uncertainty this year would do well to consider four ETFs from T. Rowe Price. The firm brings a wealth of research and experience to bear when managing its strategies.
Economic data remains complex, with stress fractures showing in some areas but not others. U.S. GDP contracted in the first quarter on tariff import front-running. U.S. ports are reporting declines across the board in imports and increasingly in exports, according to research from CNBC. Consumer confidence plummeted in recent weeks and earnings season is populated with warnings of tariff impacts in the second half.
At the same time, the labor market proved surprisingly resilient once again. A relatively solid jobs report for April with stable unemployment lends credence to maintaining interest rates at current levels. Should inflation continue to ease, it could pave the way for rate cuts sooner rather than later.
Tariffs remain the largest wild card this year, alongside a constantly shifting U.S. economic policy. It creates a rash of uncertainty and volatility for investors to contend with — particularly those looking to rate cut timing.
Actively managed strategies help take the guesswork out of timing markets. They allow investors to focus on the long-term and trust the fund managers to navigate changing trends and tides in markets. Given elevated uncertainty in the bond market in particular this year, actively managed fixed income ETFs could prove beneficial for investors.
Interest Rates Remain Steady
Should economic signals remain mixed, investors may wish to consider the T. Rowe Price Total Return ETF (TOTR ). The fund seeks total return, with income as its first priority, followed by capital appreciation. The strategy invests across a variety of bond and debt instruments and the portfolio is built to be resilient to a number of market environments. When selecting securities for inclusion, the fund manager takes factors such as expected interest rates and inflation, credit conditions, and the economic outlook into account.
The fund invests in U.S. government debt, corporate bonds, bank loans, and asset-backed securities. It also invests in lower-rated bonds if yields and the macro environment prove favorable over investment-grade bonds. This makes it a notable complement to core bond strategies without the constraints of an index. TOTR has a management fee of 0.32%.
If tariff tensions escalate further, or economic impacts balloon, investors will likely look to hedge in lower risk positions such as ultra-short bonds. The T. Rowe Price Ultra Short-Term Bond ETF (TBUX ) seeks high levels of income and invests in a diversified portfolio, primarily of investment-grade, short-term securities. These include Treasuries and government bonds, corporate bonds, asset- and mortgage-backed securities, money markets, and bank loans. The portfolio has a target maturity profile of 1.5 years or less, with a management fee of 0.17%.
When Rate Cuts Resume
If bond market uncertainty is the primary concern, investors would do well to maintain positions in funds like TOTR and TBUX for their diversification potential. At the same time, moving further out on the yield curve could prove beneficial in a declining rate environment.
The T. Rowe Price QM U.S. Bond ETF (TAGG ) seeks to outperform the Bloomberg U.S. Aggregate Bond Index while maintaining a similar risk profile to the index. It invests in U.S. government debt, investment-grade corporate bonds, asset-backed securities, and other bonds.
The fund uses both quantitative models and fundamental analysis when constructing the portfolio. This may result in different individual security and sector weights from the AGG. In keeping to a similar profile to the benchmark, TAGG offers intermediate to long-term maturity exposure. TAGG also has a competitive management fee compared to passive strategies of just 0.08%.
For tax-sensitive investors in any market environment, the T. Rowe Price Intermediate Municipal Income ETF (TAXE ) could benefit from declining rates. The fund seeks high income that’s tax exempt at the federal level. The portfolio contains investment-grade municipal bonds or derivatives tied to municipal bonds or the muni market.
As with many tax-free bond funds, some of the income earned may come from securities where the alternative minimum tax is applicable. The fund’s duration of approximately 5 years makes it an attractive lower-tax approach to add intermediate duration to investor portfolios. TAXE carries a management fee of 0.24%.
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