Displaying items by tag: active management

The fixed income ETF market took a hit in 2020, and it's been a very slow recovery. Still, active funds outperformed during this time period, and that trend could continue into 2022. A stand-out active bond ETF to consider is Fidelity Total Bond ETF. it’s seen stellar performance when compared to its peers and its managers are committed to ensuring liquidity. Another ETF to watch out for is Pimco enhanced Short Maturity Active ETF. This fund is more centered around stability and security with less risky management. However, avoiding high yield corporate debt and currency risk these factors can make it a safer alternative in the upcoming cycles.

FINSUM: Shorter duration active bond ETFs are really important to consider right now because they mitigate the single biggest risk that exists in bond markets: rising rates.

The bond market blues have been difficult as rising rates have started to really deflate a lot of funds. However, active bond funds have had an edge because not been pegged to indices they have freely navigated to localized emerging market debt. From HSBC to BNP many of the largest funds are buying up localized EM debt because many of these countries’ central banks tightened monetary policy last year and the rate hikes are already built-in. So as bond prices go down in the U.S. and inflation risk remains high, hawkish central banks in Russia, South Africa, Indonesia, China, and South Korea have all soured because localized currency means higher real payout and with relatively lofty interest rates the funds have a more promising horizon.

FINSUM: 12-Months ago the U.S. was looking at Emerging Markets as crazy for tightening the belt too quickly, but now these emerging markets are ahead of inflation and their bonds are soaring.

David Booth’s Dimensional Advisors hasn’t been a part of the active ETF market for long in fact just a meager 14 months, but that hasn’t stopped it from rising to the top of the active market. Since last November they have rocketed to over $46 billion in active assets. Overall active management is growing rapidly and going to be a trillion-dollar trend of converting mutuals to ETF’s. However, Dimensional’s newly launched active fixed-income is flying off the shelves with nearly $1 billion in assets since their inception in November. While the lion’s share has been converted, this fixed-income segment is among some of the fastest pure growth in the fixed income ETF market.

FINSUM: Within the ETF segment, active ETFs have been growing strongly, and this is at the forefront of a new trend.

ETFs saw a record performance in 2022 as inflows almost reached 1 trillion dollars, and while equity brought in over 60% of the inflows the second half was dominated by the fixed income market. This momentum in fixed income is expected to swell in 2022, particularly for the active ETF funds. Driving that those trending figures are the outperformance of active funds over passive funds, and an almost peak interest rate and inflation uncertainty. This sort of bourgeoning inflation and constricting Fed is unprecedented for the post-Volcker era. Active Issuers like T. Rowe price are very bullish on their prospects in the upcoming year.

FINSUM: While active funds haven’t brought home major returns they are getting better yield than passive funds and more diversity rather than piling on U.S. government securities.

The active ETF market is full of bonds as nearly 2/3rds of all active funds are in fixed income. Everyone is searching for a beta advantage in this market, and real estate could be the play. Index tracking fixed income isn’t cutting it because of the low yield environment, and treasuries taking up too much space. Investors are shortening the duration to mitigate the interest rate risks as inflation is baring down as well. Funds like DigitalBridge Fundamental US Real Estate, are managed fixed-income products that give exposure to fixed-income and REITs. Most investors hold bond funds for precaution but real estate does a better job of providing uncorrelated returns. DBRIX just hit a three-year anniversary in a growing market segment.

FINSUM: Shortening duration has been a no brainer for those with bond exposure but adding some real estate to the fixed income could really distinguish an active FI opportunity.