Between Moody’s recent downgrade of the U.S. credit rating and the specter of significant deficit spending in the president’s “big, beautiful bill,” among other factors, there’s an unusual amount of headline risk currently confounding the bond market.
Nothing is a 100% cure-all for such turbulence, but active management is an increasingly valid consideration for fixed income investors and it’s accessible via an array of ETFs, including the ALPS/SMITH Core Plus Bond ETF (SMTH ). Amid elevated bond market volatility, SMTH has performed admirably this year. It has returned half a percent. That potentially confirms the value of active management during less-than-sanguine fixed income climates.
SMTH’s solid showing through over five months of 2025 is all the more impressive when considering the ETF is heavily allocated to U.S. government. That’s an asset class that’s been hampered by rising yields and the aforementioned Moody’s ratings reduction.
SMTH Adding Value
Some fixed investors will likely say the current environment is far from ideal for bonds. But specific to SMTH, there are some positives. Those include a YTD performance confirming the ETF’s validity as a portfolio buffer and diversification tool.
Second, active management’s advantages in the bond market are being highlighted. That’s because while some riskier bond segments are performing well this year, that situation could reverse if market participants become increasingly skittish.
“High-yield bond and leveraged loan underperformed in 2015 on fears of an economic slowdown but rebounded strongly in 2016, a more optimistic year,” noted Morningstar’s Dan Lefkovitz. “You’ll also see high-yield, leveraged loan, and emerging-markets bonds at the top of the table in 2023, when the economy surprised on the upside. Credit-sensitive asset classes are capable of big returns but also (relatively) big underperformance.”
SMTH debuted in December 2023. It’is already a $1.8 billion ETF, and it features other advantages. Its effective duration of 6.77 years is intermediate-term. And, historically, it’s bonds with that designation that offer the lowest correlations to equities.
Additionally, active management is potentially advantageous with bonds. That’s because even in the most ideal of settings, of which 2025 is not one, it’s difficult for most investors to identify the best- and worst-performing corners of the bond market. That is to say bond-picking is no easier than stock-picking.
“A final takeaway from the table: Betting on slices of fixed income is as difficult as betting on stock market segments. Leadership is highly changeable,” concluded Lefkovitz. “Most investors are best off forgoing tactical allocations and owning a broad market proxy.”
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