With just a few weeks under its belt, 2025 still offers a notable opportunity to refresh portfolios. Following a 2024 that saw significant movement and growth for active ETFs, now could be the time to consider adding active. Core allocations, specifically, could be the next frontier for active. As the inflation and interest rate back-and-forth continues, swapping into an active core fixed income allocation could stand out in particular.
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Why look to active for a core fixed income allocation? Historically, many investors have looked to active for their satellite funds, using passive strategies for their core investments. As active investing has matured, however, the time may have come to bring active’s strengths to core holdings. Many newer active funds charge much lower fees, for example.
For a core fixed income allocation, however, active has significant advantages. For starters, passively managed funds struggle to replicate bond indexes. The nature of bond maturities means maintaining an average bond maturity benefits significantly from active adaptability. What’s more, bonds being called or needing to be rolled with varying expirations also benefit from active.
Outside of those structural factors, an active core fixed income allocation can also scrutinize debt issuers more closely. In a shifting global rate environment, close assessment of a given issuer’s credit quality matters. That’s where strong fundamental research comes in via active management.
The T. Rowe Price QM U.S. Bond ETF (TAGG ), for example, could be a candidate for an active core fixed income strategy. The fund actively invests in a wide range of fixed income securities with intermediate- to long-term maturities. It looks to government debt, mortgage-backed securities, agency obligations, corporate bonds, and more.
Charging a very low active bond ETF fee of only eight basis points, TAGG may stand out as a way to shift a passive core holding to active without impacting net fees. As interest rates continue fluctuating for U.S. investors, this ETF could be one to watch.
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