Core Insights - The Federal Reserve's decision not to lower interest rates has created uncertainty in the bond market, leading to increased headline risk for investors [1] - Active management in fixed income, exemplified by the ALPS/SMITH Core Plus Bond ETF (SMTH), is gaining traction as a strategy to navigate these turbulent times [1] Industry Trends - The bond ETF market has seen significant growth, with nearly $430 billion flowing into bond ETFs in 2025, representing about 30% of all ETF inflows for that year [1] - The number of bond ETFs available has steadily increased since 2019, indicating a rising interest among investors [1] Company Performance - The ALPS/SMITH Core Plus Bond ETF (SMTH) has grown to $2.45 billion since its launch two years ago, highlighting its success in the active fixed income category [1] - SMTH differentiates itself from standard passive aggregate bond ETFs by offering innovative strategies that may benefit long-term investors [1] Competitive Landscape - The equity ETF market is perceived as saturated, making it challenging for issuers to create new and compelling equity ETF ideas, while the fixed income space still offers ample room for innovation [1] - Active managers, like those managing SMTH, can invest in bonds that are not accessible to index-tracking ETFs, providing them with unique advantages [1]

Core Insights - The fixed income ETF market is rapidly expanding, driven by population growth and increasing choices for investors, although this can lead to confusion [1] - Stock ETFs have become saturated with various strategies, making it challenging for new stock ETFs to compete, while fixed income ETFs like AGGY offer a compelling alternative for those seeking reliability [2] Group 1: AGGY's Performance and Relevance - The WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY) has $821 million in assets and has been operational for 11 years, adapting to various interest rate environments [3] - Expectations of more accommodative monetary policy and declining interest rates are prompting advisors to consider fixed income ETFs, with AGGY positioned as a yield-enhancing option [4] - AGGY's yield enhancements are attributed to a significant 44.11% allocation to corporate bonds, which is higher than competing Treasury-dependent ETFs, making it attractive in a low corporate default rate environment [5] Group 2: Role of Bonds in Portfolios - Bonds are primarily used in portfolios to manage risk, providing low volatility and effective diversification against stock market risks [6]

Core Insights - The U.S. bond market has shown resilience and record-breaking activity in 2025, with the Bloomberg US Aggregate Bond Index returning approximately 7.1% year to date, highlighting the importance of fixed income in investment portfolios [1][10] Bond ETF Market Performance - Bond ETFs captured about one-third of the nearly $1 trillion that flowed into all ETFs in 2025, indicating a significant increase in investor interest, particularly in passively managed ETFs [2][10] - The performance of bond ETFs was influenced by attractive starting yields due to the Federal Reserve's rate cuts totaling 175 basis points since September 2024, which left yields relatively high [6][10] - Market volatility and demand for liquidity during uncertain periods, such as tariff-driven uncertainty, enhanced the appeal of bond ETFs as they provided intraday pricing and liquidity [7] - Actively managed bond ETFs experienced explosive growth, capturing over $100 billion in flows, which accounted for 40% of all fixed income ETF flows as of September 2025 [8] - The normalization of the yield curve attracted significant capital into intermediate and long-term bond ETFs, as investors sought to lock in higher yields [9] 2026 Outlook for Bond ETFs - The outlook for bond ETFs in 2026 is cautiously optimistic, driven by expected interest rate cuts that typically boost bond prices, creating opportunities for income and diversification [11] - Persistent volatility due to inflation and uneven growth suggests that flexible, active management strategies will be favored to navigate credit risk and shifting rates [11] - A well-constructed actively managed portfolio of intermediate maturity bonds may offer capital appreciation and inflation-beating returns in 2026 [12] Recommended Bond ETFs for 2026 - Schwab Core Bond ETF (SCCR) has assets of $1.07 billion, gained 6.2% year to date, and charges 16 basis points in fees [14] - Vanguard Core Bond ETF (VCRB) has assets of $4.8 billion, gained 7.4% year to date, and charges 10 basis points in fees [15] - JPMorgan Active Bond ETF (JBND) has assets of $4.7 billion, surged 8% year to date, and charges 25 basis points in fees [16]

Investment Opportunities & Market Analysis - The bond market presents potential opportunities due to higher yields and the possibility of lower interest rates [1] - Fidelity discusses the Middle East conflict and the Federal Reserve June Meeting FOMC [1] - The report highlights reasons to buy bonds and where they fit in a portfolio [1] - The analysis includes a discussion of bonds and cash [1] - The report considers potential bond opportunities and provides a look ahead [1] Bond Funds & ETFs - The report covers bond ETFs, active vs passive bond funds, and building a bond fund [1] Resources & Engagement - Fidelity provides a link for fixed income, bonds and CDs research: wwwfidelitycom/bondsearch [1] - Fidelity encourages questions and engagement in the comments section [1] - Fidelity promotes various social media channels including YouTube, Reddit, Instagram, TikTok, Facebook, LinkedIn, Discord, and X (formerly Twitter) [1]