In an article for InvestmentWeek, Jeffrey A. Johnson, the head of Fixed Income at Vanguard,  discusses why there is opportunity for investors in active fixed income funds. He sees attractive valuations coupled with elevated yields. However, he warns that more volatility is likely given that central banks aren’t yet finished raising rates. 

According to Johnson, periods of volatility are when active fixed income really shines. Further, he believes investors can increase their odds of success with active investing by selecting funds with qualified and capable management teams in addition to low costs. 

Over the long-term, most active funds fail to beat their benchmarks. The story isn’t so simple in fixed income given that active managers can take advantage of different durations and credit quality that aren’t available to passive funds. 

Given the challenges of active management, Vanguard recommends a blend of active and passive funds. Although, it favors active management during periods of volatility and uncertainty. In contrast, passive funds offer predictability and lower costs, while active funds offer a higher degree of risk and reward. 

Finsum: According to Vanguard, the outlook for active fixed income funds is improving. The asset class tends to outperform during periods of volatility and economic and monetary uncertainty.