Active ETFs have exploded in popularity in recent years, especially since the ETF rule. The rule’s streamlining of ETF development and launches has encouraged plenty of new product development. The popularization of active ETFs has extended to fixed income strategies, offering some fundamental advantages over passive bond funds. The active corporate bond ETF KORP presents a key example, picking up a five-star rating in recent weeks from Morningstar.
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The American Century Diversified Corporate Bond ETF (KORP ) launched prior to the ETF rule in 2018. Nearing a decade of operation, the fund has seen its AUM accelerate in recent years, tripling since 2020. KORP charges a 29 basis point fee for its services, actively investing in the corporate bond market. The fund received a five-star rating from industry analysts Morningstar as of December 31.
Active Corporate Bond ETF KORP on the Rise
What aspect of the active corporate bond ETF’s approach, then, has helped drive its success? The strategy looks to provide current income to investors with enhanced returns. KORP leans on intermediate term corporate bonds of investment-grade quality, while allocating some of its assets to so-called “junk bonds” as well.
Together that has helped the fund reach a 5.8% yield to maturity as of December 31 and a 4.9% 30-day SEC unsubsidized yield as of that date as well, per American Century Investments data. The active corporate bond ETF has returned 8.5% over the last one year, as well, per ETF Database data. That return beat KORP’s ETF Database Category average in that time.
The fund has done this by relying on active’s greatest strengths and ability to outperform passive in the bond space. The strategy’s managers use its active flexibility to closely scrutinize each issuer’s fundamental data and factors like sector and industry data. That can be a big help compared to passive bond funds that must faithfully replicate their indexes.
What’s more, where passive bond funds may struggle to replace holdings that are called early or see default, active funds can adjust. Together, active corporate bond ETF’s five-star rating and its active flexibility could make it an appealing offering for an uncertain year.
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