Fixed income is once again a place of exciting opportunities for investors. From U.S. and ex-U.S. debt to varying durations and yield types, ETF offerings present a vast array of choices to shape investor portfolios Thursday’s VettaFi Q2 Market Symposium explored those topics in a segment titled “The Yield Tug-of-War: Solving the Active-Passive Puzzle in Fixed Income,” which included leaders from Invesco and Fidelity Investments.
The segment, hosted by VettaFi Director of Research Cinthia Murphy, included thoughts from Invesco Head of Fixed Income Business Strategy & Development, Stephanie Larosiliere and Fidelity Investments Institutional Portfolio Manager, Christine Thorpe. The pair discussed their own outlooks on the space and how they interpret opportunities, as well as ETF offerings for investors to consider.
Larosiliere, who joined Invesco in 2011, pointed to fixed income’s resurgence as a key factor in 2026. Income has returned to the fore, but “far more nuanced” than just higher yields. Following a period of bonds being mostly defensive, she said, income has a bigger role to play.
“Income is once again a meaningful contributor to total return,” she said. “Starting yields are materially higher across many sectors, which opens up opportunities that didn’t exist for much of the past decade.”
She pointed to core plus ETFs like the Invesco Total Return Bond ETF (GTO ). The strategy, she said, is now “able to deliver income levels that would’ve felt unrealistic just a few years ago without needing to take on excessive risk.”
GTO charges a 35 basis point fee and recently celebrated its tenth anniversary of operation. The strategy actively invests in corporate debt, mortgage-backed securities, bank loans, munis, and more. It can invest up to a third of its portfolio in junk-rated borrower debt.
Markets and funds like GTO face a market “defined by cross currents,” Larosiliere explained. Inflation has proven stickier, while geopolitical risk and policy rates remain important considerations. The result, she added, is not “a uniform beta driven opportunity set, but one marked by dispersion across sectors, structures, and parts of the curve.” It’s that dispersion that creates opportunities, she continued.
“We’re no longer in a world where simply extending duration or reaching for yield automatically works,” she said.
What should investors make of that situation, then? According to Larosiliere, just chasing headline yield without considering other actors can cause portfolio issues. Instead, Invesco’s framework emphasizes intentionality when it comes to duration, she added. The firm is emphasizing the front and back ends of the curve while staying balanced in the middle.
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Furthermore, she emphasized the importance of diversifying across rate and spread drivers. Market stress can expose different risks like credit or structural risk, she explained. She specifically called out the trade off between capital preservation and income, pointing to GTO if there is “renewed pressure” on the long end of the curve.
“I mentioned GTO previously, but strategies like GTO, they tend to demonstrate how duration can be positioned thoughtfully along the curve,” she said.
“At the other end of the spectrum, ultra short ETFs like GSY and VRIG play an important role by providing a high quality income source with limited duration exposure in periods of volatility,” she added, referring to the Invesco Ultra Short Duration ETF (GSY ) and the Invesco Variable Rate Investment Grade ETF (VRIG ).
To conclude, she pointed to other trends in muni bonds and ex-U.S. investments as areas to watch. In particular, she said, the high-yield muni space deserves a particular shoutout. Backed by infrastructure spending, it can also help diversify bond holdings. She made a point to emphasize the Invesco Rochester High Yield Municipal ETF (IROC ) as a strong option therein.
“We’re talking about tax exempt income inside of a tax efficient wrapper,” she said. “Municipals tend to be a largely inefficient market, trades in a very fragmented nature, over the counter driven by idiosyncratic credit risk”
“And having that strong underlying credit team that is doing the due diligence and the analysis to understand every single security that’s making it into that portfolio, I think is really a game changer when it comes to Munis,” she added.
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