The age of active bond ETFs has well and truly arrived. With a live rate market back in the cards in recent years, more and more investors are turning to active ETFs for fixed income allocations. Where previously active mutual funds dominated, their ETF cousins are now poised to play an increasingly important role. Not all such funds are created equal, of course, with each ETF created to act as a building block. For example, the ETF duo of TAGG and TOTR can illustrate how to combine active bond ETFs in a portfolio.
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TAGG and TOTR present two different sets of exposures that, when combined, can potentially boost fixed income allocations. TAGG, the T. Rowe Price QM U.S. Bond ETF, charges just an eight basis point (bps) fee to actively invest in a wide range of U.S. dollar-denominated fixed income offerings. The strategy invests in mostly medium to long-term maturity securities, agency obligations, and foreign-issued debt.
TOTR, the T. Rowe Price Total Return ETF, charges a 32 basis point (bps) fee. The fund actively invests to maximize total return. Specifically, its managers invest in any maturity securities, with high yield bonds allocated up to 35% and non-U.S. dollar holdings at 20%. What’s more, it can also buy or sell mortgage-backed securities. Together, its focus on anything from corporate bonds to bank loans and mortgage-backed securities allows its managers to seek out the strongest overall opportunities.
By leaning on fundamental research, that duo of active bond ETFs can identify the strongest potential opportunities. Equipped with T. Rowe Price’s fundamental research capabilities, their managers can closely scrutinize issuers’ credit quality levels or overall financial conditions. With their relatively low fees, the duo could provide notable options to add yield. TAGG can provide a steadier focus, empowering TOTR to maximize its total return efforts.
TOTR returned 2.4% in 2024 per T. Rowe Price data, adding a 4.98% 30-day SEC Standardized Yield as of February 28th. TAGG, meanwhile, returned 1.7% in 2024 and offered a 4.46% yield as of February 28th. Together, the duo could be worth considering amid rising interest in active ETFs.
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