Many investors are very familiar now with the rise of active ETFs. Active strategies have made a big leap forward over the last few years, taking in significant flows relative to their smaller AUM as a segment of ETFs as a category. While that has largely focused on equities, that doesn’t tell the full story. Indeed, one active bond ETF has stood out and shown that active fixed income can really boost portfolios.
See more: Bull vs. Bear: Thinking Big on Small-Caps
That active bond ETF, SMTH, launched this past December. The ALPS/SMITH Core Plus Bond ETF (SMTH ) charges 59 basis points (bps) for its approach. It has reached a significant $814 million in AUM in just seven months. Its AUM growth has relied almost entirely on inflows with $676 million in net inflows over the last six months per VettaFi data.
In terms of performance, it has done well since its inception. Per data from SS&C ALPS Advisors, SMTH has returned 4.2% since launching. That return does well when compared to its benchmark, the Bloomberg U.S. Aggregate Bond Index, which returned 1.9% in that time.
So, what approach does it take to fixed income and what role can it play moving forward? SMTH looks to invest at least 80% of its net assets in bonds. The active bond ETF can invest in bonds from government notes to corporate, commercial, and residential mortgage-backed securities to zero-coupon bonds. Moreover, SMTH can also invest in asset-backed securities, money-market instruments, commercial loans, and other fixed income securities.
Moving forward, an active core-plus bond ETF could really appeal. Its active flexibility can really help in the fixed income landscape. Whereas passive strategies often struggle to quickly deal with bonds’ particularities, active managers can bring their expertise and quick moves to get the most out of bonds. As the Fed starts to cut rates, SMTH’s active bond ETF approach could make it a worthwhile add-on top of a core allocation.
For more news, information, and analysis, visit the ETF Building Blocks Channel.
