In 2026, Active Fixed Income Is the Way to Go | ETF TrendsETF Trends is now VettaFi. Read More --The Federal Reserve disappointed many market participants when it didn't lower interest rates last month and President Trump recently named a successor to Jerome Powell. Suffice to say, there's a lot going on at the central bank. Indeed, there may be more headline risk in the bond market than investors are comfortable with. However, avenues to survive and thrive during potentially tumultuous times exist. Those i ...

Core Insights - Thematic ETFs and active fixed income are gaining renewed interest as investors seek alternatives to the dominance of the Magnificent Seven stocks [1][2] Thematic ETFs - Advisors are reevaluating portfolios to address gaps in exposure to companies leading significant market themes such as electrification and energy transition [2][3] - The ALPS Electrification Infrastructure ETF (ELFY) adopts a "picks and shovels" approach, focusing on downstream infrastructure rather than AI tech giants, investing in pipeline companies, utilities, and industrial firms benefiting from rising electricity demand [4] - Utilities and energy sectors represent a small portion of traditional portfolios, with utilities at 2% and energy at 3% of the S&P 500, despite their critical roles in electricity demand growth [5] Active Management in Fixed Income - The ALPS Smith Core Plus Bond ETF (SMTH) has surpassed $2 billion in assets in under two years, as investors shift from cash equivalents to longer-duration strategies amid expected rate cuts [6] - Active fixed income managers have consistently outperformed benchmarks, unlike large-cap equity counterparts, as the aggregate bond index serves primarily as a measurement tool rather than an investable option [7] Market Concentration and Diversification Strategies - Looking towards 2026, there are concerns about the market's concentration around the Magnificent Seven, which collectively account for over 30% of the S&P 500 [8] - Suggested diversification strategies include international exposure, small- and mid-cap allocations, value-oriented approaches, and quality strategies to mitigate concentration risk [9]

Core Insights - The integration of active management with fixed income ETFs is gaining traction, with the ALPS/SMITH Core Plus Bond ETF (SMTH) exemplifying this trend by achieving $2.27 billion in assets under management within two years [1][2] Active Bond ETFs - Advisors are increasingly adopting active bond ETFs due to their cost-effectiveness and tax efficiency compared to traditional open-end mutual funds, making funds like SMTH appealing [2] - Active bond ETFs like SMTH provide flexibility and tactical capabilities that asset allocators seek, allowing them to respond to market dynamics more effectively than passive alternatives [3][4] Market Dynamics - The unpredictable nature of bond markets suggests that active ETFs may be better suited for investors looking to navigate macroeconomic fluctuations, as they can help mitigate the risks associated with market timing [5][6] - Historical context indicates that misjudging interest rate movements can lead to significant opportunity costs, underscoring the value of active management in bond investing [6]

Core Insights - Fixed income ETFs are experiencing significant growth, with record inflows totaling $325 billion as of October 15, driven by funds like Vanguard Total Bond Market ETF (BND) and Vanguard Total International Bond ETF (BNDX) [1] Inflows and Performance - Vanguard's BND attracted $15 billion in inflows, serving as a core bond option that tracks the Bloomberg U.S. Aggregate Float Adjusted Index, making it suitable for a 60/40 stock-bond portfolio [2] - BNDX also saw substantial inflows of over $9 billion, indicating increased interest in international assets as the U.S. dollar declines; it tracks the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index [4] Active Management Options - For those seeking an actively managed bond option, the Vanguard Core Bond ETF (VCRB) offers a 30-day SEC yield of 4.42% with a higher expense ratio of 10 basis points compared to BND's 3 basis points [3] - Vanguard has launched several new active fixed income ETFs, including the Vanguard High-Yield Active ETF (VGHY), expanding its active ETF lineup to nine funds [6] Future Outlook - The fixed income ETF market is expected to continue attracting investor capital, with 2025 marking a record year for active ETF launches; Vanguard is adapting by increasing its active fund offerings [5][7]

Core Insights - Interest rates have decreased, leading to a changing fixed income landscape where investors are seeking higher yields [1] - Jason Greenblath from American Century Investments highlights the potential in corporate bonds and the advantages of an active fixed income strategy [2][4] Corporate Bond Opportunities - Greenblath emphasizes that despite tight spreads, there are still significant opportunities in the investment-grade universe, which consists of around 8,000 bonds from nearly 800 borrowers [2] - The focus is on short maturity, BB-rated high yield bonds, which can yield mid-single digits, often exceeding 6%, compared to the index yield of 4.75% [3] KORP ETF Strategy - The American Century Diversified Corporate Bond ETF (KORP) actively invests in corporate bonds, charging a fee of 29 basis points, aiming to provide both yield and income [4] - KORP seeks to capture income through newer vintage bonds with attractive coupons of 5% to 7%, which were not issued during the pandemic [4] Investment Approach - KORP's strategy involves a concentrated portfolio with 200 to 300 line items, allowing for deep scrutiny of potential investments, unlike the broader index [3][4] - The ETF can adapt to market conditions and capitalize on specific events related to top borrowers, such as AT&T and JP Morgan, when spreads are expected to tighten [5][6] Portfolio Role - KORP may serve as a core component in investor portfolios, providing corporate exposure while maintaining similar interest rate risk to the Bloomberg Aggregate Bond Index [7] - The active management of KORP allows it to capture themes that the index may overlook, making it an appealing option for those seeking additional yield [6][8]

Core Viewpoint - Invesco Ltd. is expanding its active fixed income platform with the launch of two new actively managed ETFs, the Invesco Core Fixed Income ETF (GTOC) and the Invesco Intermediate Municipal ETF (INTM), enhancing investor options in the fixed income market [2][6]. Company Overview - Invesco Ltd. manages over $491 billion globally across various investment vehicles, including ETFs, mutual funds, and separately managed accounts (SMAs) [2][7]. - The firm has a strong track record in active fixed income management, with a dedicated team of 182 members averaging 18 years of industry experience [3]. Product Details - GTOC is designed as a core portfolio building block, investing in high-quality U.S. investment grade fixed income instruments [9]. - INTM aims to provide federally tax-exempt income by investing at least 80% of its assets in investment grade municipal bonds rated BBB or higher, focusing on high credit quality and intermediate duration [9]. Market Trends - The launch of these ETFs reflects the growing client demand for fixed income and active ETFs, which are significant trends in the current market [5]. - Invesco's strategy aligns with evolving investor preferences for both active and passive investment strategies [5].