The Benefits of Active Strategies for Fixed Income ETF Exposure

While passive approaches are commonly thought to offer simplicity and lower fees, a compelling case can be made for the continued relevance and potential outperformance of active management in the fixed income market.

One of the most significant arguments for active fixed income management stems from the sheer scale and complexity of the bond market itself. For example, the U.S. fixed income market is estimated to be roughly double the size of the Bloomberg U.S. Aggregate Bond Index, a common benchmark for the U.S. bond market. This vast universe potentially provides active managers with a much larger opportunity set compared to an index-tracking approach.

Active managers that have deep resources across portfolio management, trading, research, and quantitative analysis have the potential to uncover price dislocations and capitalize on opportunities that exist outside the purview of passive strategies. This proactive approach may not only lead to long-term returns exceeding benchmarks but may also offer protection against drawdown risk — an important concern for fixed income investors.

As active fixed income ETFs continue to gain prominence, investors are presented with an increasing array of choices across various strategies. This means that investors must do thorough due diligence to understand the nuances of each offering.

Fidelity Investments has worked to provide investors with a broad spectrum of choices, including building out active ETF suites.

The first active fixed income ETF worth consideration is the Fidelity Investment Grade Securitized ETF (FSEC A), which has been among the most popular active ETFs in 2025 by net flows.

FSEC aims to provide a high level of current income for investors. It invests in medium- and high-quality investment-grade securitized debt securities and repurchase agreements for those securities. The Fidelity ETF comprises mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) issued by the U.S. government and its agencies. This active ETF also includes MBS, CMBS, and other asset-backed securities issued by nongovernment-related entities.

Additionally, Fidelity offers the Fidelity Municipal Bond Opportunities ETF (FMUB ). FMUB is an active strategy that offers muni bond access in a tax-efficient vehicle.

FMUB invests in muni securities with interest exempt from federal income tax. The majority of holdings are investment-grade. However, it may invest up to 30% of its assets in lower-quality debt securities.

Finally, the Fidelity Enhanced High Yield ETF (FDHY A) is worth consideration for its role in a diversified fixed income portfolio. Fidelity’s active high-yield bond ETF uses a quantitative, rules-based approach to exploit market inefficiencies. The model underpinning FDHY systematically screens for bonds with high return potential and low default probability. It does this using a value- and quality-based methodology.

For more news, information, and analysis, visit the ETF Investing Channel.

Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.

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