Despite the prospect of rate cuts, higher-for-longer interest rates continue to add a dose of uncertainty into the bond markets. But investors are responding by turning to active management strategies to quell any anxiety.
"A rocky stretch in the debt markets has American savers turning to Wall Street pros for help picking their bonds," a Wall Street Journal report said succinctly.
Active management funds allow investors to tap into the knowledge of portfolio managers. In a complicated bond market environment, this is almost imperative. And based on the inflows into active funds, investors are already realizing this.
"About $105 billion has flowed into actively managed fixed-income funds on a net basis this year, compared with $74 billion for funds that choose investments by tracking an index, according to Morningstar Direct data as of April 30," the report noted. "That marks the first time flows into active bond funds topped those into passive funds during the period since 2021."
Part of the allure of active funds is that they are also now competitive in terms of pricing versus their passive peers. Vanguard, in particular, has a pair of cost-effective ETFs that allow investors to get core bond exposure with the deft management of bond pros via active management.
Core Exposure With an Active Strategy
With just a 0.10% expense ratio, the Vanguard Core Bond ETF (VCRB) is worth a look when seeking to get actively managed bond exposure. As mentioned, active management helps maintain pliability, especially if the bond market becomes volatile. With an election season forthcoming, the market could get especially volatile.
VCRB mitigates credit risk via diversified exposure to the U.S. investment-grade bond market. The fund doesn't stay strictly within the safe confines of U.S. Treasuries. VCRB extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities in order to extract yield. Again, with the active exposure that VCRB offers, investors can harness the portfolio management capabilities of the Vanguard Fixed Income Group. As of June 10, the fund features a 30-day SEC yield of 4.86%.
Another active option is the Vanguard Core-Plus Bond ETF (VPLS), which adds selective exposure to riskier credit profiles such as emerging market debt, but that risk is tempered by the flexibility of the fund’s active management. The deeply diversified fund (almost 800 bond holdings) features a low 0.20% expense ratio with a 30-day SEC yield of 5.02%.
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