For actively managed ETFs, 2024 was a record year of asset gathering. And the good times may keep going this year. Many market observers are forecasting leadership from active fixed income ETFs.
That trend could benefit funds such as the MLPS Intermediate Municipal Bond ETF (MNBD ) and the ALPS/SMITH Core Plus Bond ETF (SMTH ). Entering this year, globally listed active ETFs held a record $1.1 trillion in AUM, with much of that size courtesy of U.S.-listed fare, including MNBD and SMTH.
It’s possible the law of large numbers kicks in for active ETFs and that getting to $2 trillion in AUM could be more difficult than hitting the $1 trillion mark. But SMTH and MNBD have room to grow. And the ALPS ETFs offer the same advantages found with passive funds — unavailable with actively managed mutual funds.
“Active ETFs offer all the advantages of the ETF wrapper. They are cost-effective and offer intraday trading at a known price just like stocks, as well as offering greater transparency on holdings,” noted Goldman Sachs Asset Management (GSAM). “Unlike passive ETFs that track an index, however, the active variety are managed by investment professionals with the goal of achieving specific outcomes, including capturing market inefficiencies, targeting investment themes such as sustainability, outperforming a benchmark, and generating income.”
MNBD, SMTH Ready for Prime Time
The Federal Reserve’s signaling it could use restraint when it comes to interest rate cuts this year. So active fixed income ETFs such as MNBD and SMTH could gain traction among advisors and investors. After all, active management can be more responsive than passive regarding monetary policy challenges. Plus, some experts believe active management and bonds is the ideal union.
“Active investing and fixed income are a natural fit. The $141 trillion fixed income market is vast and expanding. It is complex, with more than 3 million unique securities outstanding across a range of types, maturities and ratings,” added GSAM.
In addition to the aforementioned structural advantages found with MNBD and SMTH, the ALPS ETFs could offer other perks relative to active mutual fund rivals, including lower costs and superior transparency.
“Combining active management with the ETF wrapper can provide investors with a set of unique tools for navigating the fixed income market,” concluded GSAM. “Active ETFs allow managers to respond to evolving market [conditions. For example,] by adjusting a portfolio’s sector composition and duration exposures. They provide investors with the benefits of specialist fundamental research and bottom-up security selection that can help identify issuers well-positioned for both cyclical and structural trends.”
For more news, information, and analysis, visit the ETF Building Blocks Channel.
