Active Bond Fund Gains Traction in Shifting Rate Climate

Core Insights - An actively managed bond fund from SS&C ALPS Advisors has seen nearly $1 billion in net inflows over the past year, indicating a shift in investor strategy towards security selection over passive index tracking [1] - Major financial institutions, including Charles Schwab and Morgan Stanley, predict that 2026 will experience steepening yield curves and widening investment-grade credit spreads, creating opportunities for active bond managers [2][4] - The ALPS Smith Core Plus Bond ETF (SMTH) has grown to $2.3 billion in assets, with net inflows of $951.05 million over the past 12 months, reflecting strong investor interest [2][3] Performance Metrics - SMTH has posted a year-to-date return of 6.52%, slightly outperforming the category average of 6.45%, and a trailing 12-month return of 5.95%, compared to the category average of 5.93% [3] - The fund charges a 0.59% expense ratio and currently offers a 4.19% 30-day SEC yield [3] Investment Strategies - According to Charles Schwab, actively managed portfolios can achieve additional returns through "carry" and "roll" strategies when yield curves steepen, contrasting with passive strategies that may face increased volatility [4] - "Carry" involves selling shorter-term bonds with lower yields and reinvesting in longer-term bonds to capture yield differences, while "roll" refers to managing a portfolio's duration to realize capital gains as bonds move along the yield curve [5] Market Outlook - Morgan Stanley analysts anticipate widening investment-grade spreads as technology companies issue debt for artificial intelligence infrastructure, with less than 20% of an expected $3 trillion in data center-related capital expenditures deployed to date [6] - The fund's investment strategy includes a mix of corporate bonds, government securities, securitized debt, and preferred stock, emphasizing dynamic portfolio positioning and allocation flexibility [7]