More inflows into active bond ETFs during the month of June is following the overall trend of higher inflows since the start of the year. That said, it’s an ideal time to get core exposure with the added flexibility of active management with a pair of Vanguard ETFs.
“Investors are shovelling cash into exchange traded funds that invest in a handpicked array of bonds, with record inflows since January that are pushing the industry towards its first $1tn annual haul,” the Financial Times reported. “Actively managed fixed-income ETFs took in $7bn in June and have garnered $41bn over the first half of 2024, surpassing 2023’s record of $33bn for the entire year, according to data from State Street Global Advisors, the third-largest US ETF issuer.”
Yield is certainly a prime catalyst for the increased demand for bonds as investors are clamoring to lock in yields now before central banks start to cut interest rates. Additionally, active funds have been more competitive in terms of pricing compared to their passive counterparts.
Investors looking to add bonds as part of a traditional 60/40 stock/bond-portfolio split can also benefit from active funds.
“In the traditional 60/40 portfolio, 40% of the portfolio would be better served, in most cases, by taking a more active approach,” wrote Chris Gunster, partner and head of fixed income at Fidelis Capital Partners, LLC, in Forbes. “The primary advantage of an active approach to bond investing is that it can better align the objectives and risks of the investor to their bond portfolio.”
2 Active Options for Core Exposure
The added flexibility of active funds can be beneficial when uncertainty swirls in the bond markets. With a forthcoming presidential election, there could be a heavy dose of volatility, which is where active management can shine.
To that note, consider the Vanguard Core Bond ETF (VCRB ) and the Vanguard Core-Plus Bond ETF (VPLS ), They carry 0.10% and 20% expense ratios, respectively, demonstrating their cost effectiveness.
VCRB provides diversified exposure to mostly the U.S. investment-grade bond market. In addition to staying within the safe confines of U.S. Treasuries, the fund extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities.
Investors looking to add more yield, but still maintain investment-grade quality, will want to consider VPLS. The fund adds selective exposure to riskier credit profiles such as emerging market debt, but its active strategy can help temper said risk.
Both funds allow investors to harness the deep well of talent from the Vanguard Fixed Income Group. Regardless of whether rate cuts happen sooner or later, their market flexibility should provide these active funds with a sustained competitive advantage.
For more news, information, and analysis, visit the Fixed Income Channel.
