On a global scale, more investors are continuing to turn to active exchange-traded funds (ETFs) in 2024. That said, Vanguard has a pair of bond options if fixed income investors are looking to get active with their portfolio.
“At the global level, Morningstar data shows that in the first half of 2024 actively managed ETFs have captured a quarter of flows despite representing just 7 per cent of ETF assets, with the annualized growth rate running at 20 per cent a year,” reported the Financial Times. “Worldwide, actively managed assets grew to a record $889bn after starting the year at $714bn.”
One of the reasons for the growing interest is the lower costs. Active funds are increasingly becoming more competitive in terms of price when compared to their passive counterparts.
Active bond ETFs in particular are also seeing more interest as fixed income investors would rather leave it up to portfolio managers who can navigate a murky bond environment. With the U.S. Federal Reserve having to perform a balancing act between easing monetary policy and guiding the economy to a soft landing, now is an ideal time for active exposure.
2 Options from Vanguard
Vanguard has a pair of active bond ETF options in the Vanguard Core Bond ETF (VCRB ) and the Vanguard Core-Plus Bond ETF (VPLS ). Both funds allow investors to harness the deep well of talent from the Vanguard Fixed Income Group. As mentioned, given that the bond market has its own set of intricacies, the Vanguard Fixed Income Group has the necessary education and experience to navigate through these complexities.
As mentioned, lower costs is another factor contributing to the growing interest of active ETFs. That said, VCRB and VPLS carry 0.10% and 0.20% expense ratios, respectively.
Active management allows portfolio managers to adjust holdings based on current market conditions. With an impending presidential election, more volatility could be ahead, giving active management a degree of flexibility that’s not inherent in passive funds.
To mitigate credit risk, VCRB focuses on the U.S. investment-grade bond market. In addition to U.S. Treasuries, the fund extends its exposure to other fixed income assets for diversification, which includes mortgage-backed and corporate securities. This allows the fund to extract more yield opportunities for income diversification.
Speaking of yield, it has been one of the prime motivators for obtaining bond exposure. And fixed income investors looking to maintain yield will want to consider VPLS. The fund adds exposure to riskier credit profiles such as emerging market debt. But like VCRB, its active strategy can help temper risk.
For more news, information, and analysis, visit the Fixed Income Channel.
