Exchange-traded funds can be a great vehicle for fixed-income strategies, but there are a few things worth paying attention to when picking an active bond ETF. Active bond ETFs tend to carry a higher premium/discount than their passive counterparts, particularly for smaller active ETFs that trade less frequently. In addition, a manager’s success in a mutual fund wrapper might take time to translate into a new ETF version. Bond portfolios take time to build and require assets to scale. These limitations are by no means a dealbreaker for active bond ETFs, but investors used to the well-oiled machine of more established passive bond ETFs should proceed with caution here.
The Price Is Slightly Not Right
The exhibit below displays the median monthly premium/discount for the Morningstar Categories with the most active bond ETFs. The median is calculated for each ETF from absolute values of its monthly premium/discount over the trailing 12 months and aggregated by category.
Morningstar Categories With Most Active Bond ETFs
