The marriage of active management and fixed income ETFs is garnering increasing attention. Rightfully so: the bond ETF wrapper is seen as breathing new life (and assets) into actively managed products.
The ALPS/SMITH Core Plus Bond ETF (SMTH ) is among the funds contributing to a noteworthy growth spurt. SMTH turns two years old on Dec. 5 and has $2.27 billion in assets under management – an impressive tally for a young bond fund.
That data point is testament to advisors’ embrace of active bond ETFs. These ETFs are vehicles that are often more cost-effective and always more tax-efficient than old guard open-end mutual funds. Fees and superior tax efficiencies are credible reasons to consider ETFs such as SMTH. However, there are factors that could be harbingers of coming growth for the ALPS fund.
SMTH: Flexible, Tactical Fixed Income
If there are two things asset allocators want with fixed income ETFs, it’s flexibility and the ability to be tactical. SMTH checks those boxes.
“What you’re dealing with are market dynamics and trading dynamics that may not necessarily be anchored in anything super fundamental at any given moment,” observed Eric Jacobson, Morningstar’s senior principal for fixed-income strategies.
Clearly, it’s no easier to tell the future with bonds than it is with stocks. When accounting for that, investors may want to tap strategies such as SMTH. which are more responsive to bond market goings on than standard passive fixed income ETFs.
Speaking of not having crystal balls, but wanting some insurance on what happens next in the bond market, an active ETF like SMTH may be better suited than a passive equivalent to keep investors engaged with fixed income assets regardless of the macroeconomic climate. Said another way, some market participants attempting to time the bond market are unlikely to get it right and may miss out on opportunities in the process. SMTH can offer protection against that ominous scenario.
“If you had positioned your portfolio, as an example, after the financial crisis, expecting that interest rates are going to spike at any time—in other words, we’re going to have a bear market like we had in 2022—you would have sat on the sidelines for years,” added Jacobson. “And it would have cost you in terms of the opportunity cost. But also in a bond world, you can actually pay in a sense if you’re buying bonds and then hedging out the interest rate risk, that’s costing you.”
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