Points to Consider When Buying an Active Bond ETF

Core Insights - The active bond ETF segment is rapidly growing, with the ALPS/SMITH Core Plus Bond ETF (SMTH) being a notable example, having nearly $2.5 billion in assets under management within just over two years [1] Group 1: Active Bond ETFs - Active bond ETFs generally have higher fees compared to passive counterparts, which can motivate managers to deliver better performance [1] - Morningstar analyst Lan Anh Tran notes that cost compression in passive ETFs makes it challenging for active managers to compete on fees, necessitating greater advantages from active ETFs [1] Group 2: Performance and Risk - Active bond managers have a better chance of outperforming passive peers compared to active equity managers, with a success rate around 50% over longer periods [1] - SMTH maintains a relatively low risk profile, with two-thirds of its holdings rated AA or A, and only 9% rated as junk (BB or B) [1] - Active bond ETF outperformance often comes with higher risk, but a skilled manager can ensure investors are adequately compensated for that risk [1]