Advisors and investors have long turned to active management for fixed income exposure. They are increasingly favoring ETFs to access the markets. The ETF industry has crushed the prior year record for fixed income ETFs with nearly $300 billion in assets. Asset managers continue to bring their best and brightest fixed income experts into the ETF market.
This is my simple argument why actively managed fixed income ETFs are so popular. As of December 11, active fixed income ETFs gathered more than $100 billion of new money in 2024.Based on VettaFi data, we think demand will continue to grow in 2025.
Advisors Plan to Boost Active Fixed Income Exposure
Last week VettaFi hosted a Market Outlook Symposium and had more than 530 live attendees. We asked the audience a number of questions. One key one was “Which best describes your approach to fixed income investing for 2025?” The majority (51%) responded “I will be adding to actively managed funds”. This notably is more than the 20% that would be adding to index-based funds.
The remainder will either be making no changes (29%) or selling fixed income exposure (5%). The question was intentionally vague and did not differentiate between ETFs and mutual funds. We spoke about active mutual funds and active ETFs during the VettaFi Symposium. We believe advisors and investors will increasingly turn to ETFs as the vehicle of choice.
Where is the Money Flowing?
Let’s look at the most popular core, core plus and multi-sector fixed income ETFs in 2024. Core funds invest nearly all of their assets in investment-grade bonds. Meanwhile, core plus and multi-sector funds add in some additional speculative grade securities adding some reward potential in exchange for risk.
The Fidelity Total Bond ETF (FBND ) gathered over $10 billion and manages $17 billion in assets. FBND is a core bond fund. The active ETF was up 3.9% year-to-date through December 11, outperforming the 3.1% for the index-based iShares Core Aggregate Bond ETF (AGG ).
According to Fidelity’s data, BND was recently overweighted corporate bonds and agency-backed securities. The ETF was underweighted US government bonds.
iShares and JPMorgan Funds Swelling in Size
The iShares Flexible Income Active ETF (BINC ) gathered $6.2 billion in 2024 pushing its assets up to $6.7 billion. BINC is a multi-sector bond fund. This active ETF was up 6.3% year to date, ahead of the the 3.8% for the iShares Core Total Bond Market ETF (IUSB )
According to iShares data, BINC has approximately 35% of assets in speculative-grade bonds. Non-US credit, high-yield corporate bonds, CLOs, and commercial mortgages were the largest bond sector exposures.
The JPMorgan Core Plus Bond ETF (JCPB ) added $2.5 billion of new money to nearly reach $5 billion in assets. The ETF was up 4.8% for the year, ahead of the gains achieved by index-based IUSB. Agency mortgages (30% of assets), Treasury bonds (26%) and investment-grade corporate bonds (23%) were most represented in the ETF. JCPB has approximately 15% in speculative-grade-rated assets.
The Capital Group Core Plus Income ETF (CGCP ) and the PIMCO Multisector Bond Active ETF (PYLD ) have been other highly popular active fixed income ETFs this year. We think the future is very bright for active ETFs leveraging fixed income expertise.
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