The CboeVolatility Index (VIX) spiked higher through the first week of April, prompting investors to seek refuge in safe haven assets like bonds. While passive bond ETFs offer broad-based exposure, investors shouldn’t overlook active options that exist.
CNBC mentioned that ETF pundits have been seeing these active bond funds outperform their passive peers that track an index. In addition, juxtaposed with active equities managers, bond funds have fared better historically. This further supports the notion that, while more expensive than passive funds, active funds can still offer value. That extra performance attained supersedes higher expense ratios.
S&P’s SPIVA data further highlights the strong performance of active funds relative to funds focused on equities in 2024. As SPIVA mentioned, active fixed income funds exhibited "pockets of high outperformance.”
“According to the SPIVA data, a majority of funds posted outperformance in 11 out of 16 fixed-income categories, and a 41% underperformance rate across all categories,” CNBC reported. "That’s compared to 65% of U.S. large cap funds that underperformed the index. It wasn’t great across the board, but more accurately described by SPIVA as a year in bonds
Active & Passive Option
Vanguard has low-cost solutions for investors looking to get fixed income exposure in both the active and passive categories.
An active fund provides added flexibility, especially in today’s market uncertainty that’s causing heavy volatility. That said, consider the Vanguard Core Bond ETF (VCRB ). The fund mitigates credit risk via diversified exposure to the U.S. investment-grade bond market. However, the actively managed VCRB also extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities. The fund harnesses the portfolio management capabilities of the Vanguard Fixed Income Group at a low 0.10% expense ratio.
Investors who would rather stick with passive funds to attain broad bond exposure, an ideal choice would be the Vanguard Total Bond Market Index Fund ETF Shares (BND ). It’s a simple, cost-effective (0.03% expense ratio) solution for investors looking to construct their portfolio to get a 60/40 stock/bond ratio in the convenience of one ETF.
The fund seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. That index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the U.S., including government, corporate, and international-dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
For more news, information, and analysis, visit the Fixed Income Channel.
