With the bond markets behaving the way they have been so far in 2022, investors are seeking ways to mitigate risk and escape the volatility. While the latter might be more difficult while staying invested in the markets, transferring risk control to a professional can be had in the former using active management.
“Active portfolio managers believe that they can leverage their individual skill and experience—often augmented by a team of skilled equity analysts—to exploit market inefficiencies and to generate a return that exceeds the benchmark return,” wrote Rebecca Baldridge, a Forbes advisor, in KOAM News Now article.
“A deeper look into the Morningstar report shows that the success of active or passive management varies considerably according to the type of fund,” Baldridge added.
Funds that used active management showed the strategy could work in specific sectors, including real estate funds, which outperformed their passive peers. Other assets where active management shined specifically was high yield debt, where funds outperformed passive funds 59.5% of the time.
Active management can give investors dynamic exposure to the market, allowing for on-the-fly changes to positions when the markets warrant the adjustments. That’s especially the case now, as volatility has a stranglehold on the bond markets, which is also being seen in the stock and cryptocurrency markets.
“The active investor has the potential to move to a defensive position or holdings, such as cash or government bonds, during down markets to prevent catastrophic losses,” said Brian Stivers, investment adviser and founder of Stivers Financial Services in Knoxville, Tenn, in a Forbes article highlighting the pros as well as cons of active and passive strategies.
An Active Bond ETF to Consider
Given the advantages of active management, especially in the current market environment, investors who want exposure to this strategy can look to ETFs such as the T. Rowe Price Total Return ETF (TOTR). The fund seeks to offer maximum returns for investors primarily through income and capital appreciation by investing in a diverse set of bonds and debt instruments.
TOTR is constructed to be flexible in changing market conditions while still seeking strong returns. The fund primarily invests in U.S. intermediate-term bonds but has the freedom to purchase bonds from across the global opportunity set and maturity spectrum.
Examples might include debt securities issued by the U.S. government and its agencies, corporate bonds, bank loans, and various types of mortgage-backed and asset-backed securities. TOTR is ideal for the investor looking for a diversified core plus strategy for total returns via price appreciation and income. The portfolio goes beyond static indexes, with the flexibility to underweight or overweight duration in order to actively manage interest rate risks and other market dynamics.
For more news, information, and strategy, visit our Active ETF Channel.