For decades, traditional index-based ETFs have served as the low-cost foundational anchor for core allocations, consistently demonstrating that outperforming a broad market index is an uphill battle. Yet, while the vast majority of active managers continue to lag their benchmarks, a closer look at the data reveals that certain targeted active fixed-income strategies are proving worth the premium.
Key Takeaways
- Long-term performance data confirm that passive indexing retains a stark advantage, with only 21% of all active U.S. funds surviving and beating their average indexed peer over the decade through 2025.
- While fixed income remains the best-performing asset class for active management with a 42% 10-year success rate, 2025 was a tough year as active corporate bond manager success rates fell to just 4%.
- Despite structural headwinds, selective active ETFs from issuers like Nuveen, Invesco, and American Century are successfully generating alpha by navigating credit dislocations that indexes miss.
The Reality of Passive Core Performance
The latest active versus passive data from Morningstar underscores why index-based strategies remain the core baseline for advisor portfolios. In 2025, U.S. actively managed mutual funds and ETFs struggled, with just 38% of active strategies surviving and beating their average passive peers. This represents a notable four-percentage-point decline from the prior year, doing little to reverse a long-term track record in which nearly four out of five active managers underperformed the index over a 10-year horizon.
This performance drag was evident across fixed-income categories in 2025 as credit spreads whipsawed. Active intermediate-core-bond managers saw their success rates slide 26 percentage points to 55%, while active high-yield managers dipped to 38%. The most severe drop occurred in corporate bonds, where the active manager success rate plummeted 63 percentage points to just 4%.
Active bond funds routinely take on more credit risk than indexed peers, according to Morningstar. When spreads widened in April 2025 amid tariff announcements, managers actively pared back exposure, completely missing the subsequent market rebound in May and June.
The Outliers Among Active Fixed Income ETFs
Despite this uphill battle, fixed income remains a space where specialized active managers can justify higher expense ratios. Furthermore, over the past decade, 42% of active bond funds survived and outperformed their passive counterparts — the highest success rate of any major asset class.
Recognizing this pocket of opportunity, institutional giants are building out their active fixed income ETF lineups to help advisors target market inefficiencies.
Nuveen has been aggressively expanding its footprint, deploying vehicles like the Nuveen Securitized Income ETF (NSCI) to capture alpha in structured credit. By dynamically navigating mortgage-backed securities and collateralized loan obligations, NSCI posted a 2.30% year-to-date NAV return through June, handily beating the passive Bloomberg U.S. Securitized Bond Index’s 0.98% return. Similar benchmark-beating exceptions have popped up across the active landscape.
Where Selective Active Fixed Income ETFs Yield Alpha
This dynamic of active outperformance is emerging across distinct segments. In ultra-short cash management, the American Century Multisector Floating Income ETF (FUSI ) returned 5.14% over the trailing one-year period, outperforming the 4.12% yield generated by the passive Bloomberg U.S. 1-3 Month Treasury Bill Index.
Concurrently, the Fidelity Sustainable High Yield ETF (FSYD ) leveraged structured ESG integration and fundamental underwriting to beat the broad Bloomberg US Universal Total Return Index.
Meanwhile, in the high-yield tax-exempt space, the Invesco Rochester High Yield Municipal ETF (IROC ) utilized its own distinct approach, which helped it beat the broader S&P Municipal Bond Index.
See more: Neuberger Emphasizes Quality With Its Latest Active ETF Launch
Originally published on Advisor Perspectives.
For more news, information, and analysis, visit the Fixed Income Content Hub.
