It appears that active bond funds have been actively outperforming their stock market peers, according to data from Morningstar.
“Around 84% of active bond fund managers outperformed in the one-year period that ended on June 30, 2021 versus just 47% of active equity fund managers, a semiannual Morningstar report found,” reports CNBC.
The time for an active strategy in bond funds could be now as the Federal Reserve begins to taper its bond purchases. Last year, the Fed shored up the bond market by purchasing a number of bond ETFs to help stymie the credit risks posed by the pandemic.
Actively managed funds offer dynamic positioning in the bond markets, which can help alleviate credit risk. For example, the Bloomberg Aggregate Bond Index is currently holding about 15% in BBB-rated bonds.
“Simply by owning the index, you’re owning a lot more credit risk, which may not necessarily be the right positioning to have in this current environment … with growth moderating and a variety of central bank policies creating a propensity for a little bit more volatility in the future,” said Pimco’s Jerome Schneider, who also noted the importance of the nimbleness of active managers, especially when the Fed’s rate-hiking measures are still up in the air.
An Active Emerging Markets ETF Worth Considering
As more demand for active funds rises, the strategy could be particularly useful when it comes to emerging markets (EM). While they can expose an investor to potential growth opportunities, EM have their own set of nuances that require an active strategy.
This certainly applies to EM bonds, which investors can get access to via an actively managed ETF with the Global X Emerging Markets Bond ETF (EMBD ). While cost might be a factor when it comes to actively managed funds, EMBD comes with an expense ratio of 0.39%, which falls below its category average.
EMBD is an actively managed fund sub-advised by Mirae Asset Global Investments (USA) LLC that seeks a high level of total return, consisting of both income and capital appreciation, by investing in emerging market debt. EMBD primarily invests in emerging market debt securities denominated in U.S. dollars. However, the fund may also invest in those denominated in applicable local foreign currencies.
Securities may include fixed-rate and floating-rate debt instruments issued by sovereign, quasi-sovereign, and corporate entities from EM countries. This adds a touch of diversification to an investor’s core bond portfolio.
EMBD gives investors:
- Experienced portfolio managers: EMBD’s portfolio managers have extensive track records in actively managed EM debt strategies.
- Competitive cost: At a 0.39% total expense ratio, EMBD offers the outperformance potential and risk management of active portfolio managers, at a competitive cost.
- High yield potential: By targeting EM debt securities, EMBD aims to offer high yields with low correlations to other fixed income securities.
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