It’s hard to believe now, but the 2019 ETF rule is more than six years old. The SEC’s decision to streamline ETF product development has enabled the launch of countless new ETFs, bringing the wrapper to untold new heights as an investment vehicle. Active ETFs have been a key beneficiary, and in the years since the rule, have played a bigger and bigger part in the historically mutual fund-dominated bond space. One ETF which recently celebrated its own fifth birthday helps capture the investment case for using active ETFs as core bond funds.
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That active ETF, the Avantis Core Fixed Income ETF (AVIG ), launched in October 2020. From American Century Investments shop Avantis Investors, AVIG offers an active ETF approach to the core bond fund role. Many investors expect core bond funds to charge competitive fees, with AVIG asking just eight basis points of its investors.
The core bond ETF actively invests in global investment grade debt securities. Those securities may come from corporate or government issuers, with AVIG’s managers aiming for a weighted average maturity within two years of the Agg’s weighted maturity. Its managers actively invest in bonds with high expected returns. Backed by the team’s research capabilities, the ETF’s team applies an analytical approach that assesses securities’ expected income and capital appreciation.
Core Bond Funds: How AVIG Can Appeal
The fund’s tight focus on outperformance and its lower cost help it play that core bond fund role. Where it sets itself apart from core bond funds’ historical preference for the mutual fund wrapper is of course in the ETF vehicle. ETFs offer greater transparency and flexibility than mutual funds.
Combined with an active investing remit, an ETF like AVIG can adapt more quickly than mutual funds. If, for example, a passive mutual fund sees one of its holdings default, an active fund, even following a tight process like AVIG, can replace that debt security more efficiently than a passive counterpart.
That combined active bond ETF adaptability, transparency, and efficiency has helped ETFs like AVIG increasingly serve as core bond funds. AVIG itself has performed well on both YTD and one-year time frames, per ETF Database data, returning 7% YTD, specifically. For those looking to refresh their core bond funds, an ETF like AVIG could appeal.
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