Alex Mackey, CFA, co-CIO, fixed income at MFS Investment Management, recently discussed active bond investing at the Q1 2025 Fixed Income Symposium hosted on the VettaFi platform. MFS launched a suite of actively managed ETFs at the end of 2024, three equity ETFs and two bond ETFs. Mackey delved into the strategies underpinning the MFS Active Core Plus Bond ETF (MFSB) and the MFS Active Intermediate Muni Bond ETF (MFSM).
“The active ETFs at MFS are in large part a comparable process to our traditional actively managed mutual funds,” Mackey explained.
Active Investing Across the Bond Marketplace
MFSB’s strategy falls between the existing MFS Total Return Bond Fund (MRBIX) and the MFS Income Fund (MFIIX). MFSB invests across sectors as well as bond categories. These include investment-grade corporates, high yield, and municipal bonds. It also may invest in securitized and asset-backed securities.
“The way the active ETF is positioned today is at the low end of the relative risk-taking tolerance that it exists with, but maintaining a relative spread advantage,” said Mackey. Additionally, the fund managers seek to “clip some coupon or credit carry because we do think that the fundamental underpinnings of the economy are relatively healthy.”
MSFB invests mostly in quality, investment-grade bonds, while allocating some of the portfolio to below-investment-grade securities. The management team uses bottom-up analysis when selecting securities, and may apply quantitative screens to analyze risk. They also take into account macro factors when constructing the portfolio.
While MSFB may concentrate in a single sector or industry, it seeks to invest primarily across a spectrum of industries. This creates an actively managed, diversified portfolio of bond exposures with an expense ratio of 0.34%.
Municipal Bonds Still Benefit from COVID Recovery Trend
Similar to MSRB, the MFS Active Intermediate Muni Bond ETF (MFSM) retains many of the characteristics of an MFS mutual fund. MFS has been investing in municipal bonds for nearly 50 years, and brings a depth of experience to managing the strategy. The fund relies on analysis and research from the firm’s muni team and global fixed income team when constructing the portfolio. The strategy also overcompensates for potential defaults when selecting securities, according to Mackey.
“The product has a relatively meaningful overweight to BBB credit,” Mackey explained. “We think that owning BBB credit within the muni domain is a persistent way to generate alpha.”
This creates a higher risk portfolio in an environment of relatively constructive fundamentals for municipal bonds, according to Mackey. The category also benefits from the COVID recovery trend that lifted muni bonds in recent years and remains ongoing. Mackey expanded on the strategy, noting that “incremental carry, incremental yield via credit is the way that this vehicle looks to deliver excess returns relative to the bench.”
MFSM invests mostly investment grade bonds with a dollar-weighted average effective maturity of three to 10 years. The fund can invest 25% or greater of its assets in muni bonds with similar projects, like housing, education, water, etc. It may also invest significantly in a single or small number of states.
Security selection includes bottom-up, fundamental analysis, quantitative screens for risk, and macro considerations. The fund carries an expense ratio of 0.34%.
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