Advisors and ETF industry observers know that one of the fastest-growing segments in ETF Land is at the intersection of active management and fixed income. Whether it's by way of mutual-fund-to-ETF conversions or more new ETFs coming to market, the population of active bond ETFs has swelled in recent years.
Amid a backdrop of rising U.S. government debt, persistent inflation concerns, and increased regulatory scrutiny, the fixed income landscape is undergoing significant shifts. For investors focused on capital preservation and income generation, these changes underscore the importance of a more selective approach to bond investing.
There are scores of municipal bond ETFs on the market today, many of which are cost-efficient, straight-forward, passive funds — hallmarks advisors and investors look for. However, munis are also conducive to active management.
The bond market is massive. That sprawl compels many investors to embrace aggregate bond funds for the fixed income portions of their portfolios.
The muni bond market includes over 50,000 issuers and a wide range of bond types such as school district bonds and revenue bonds linked to airports or housing authorities. This diversity offers investors many options to fit different risk and return profiles.
On a year-to-date basis, broad measures of municipal bonds are trailing the marquee aggregate, investment-grade and junk corporate bond indexes. However, some market observers believe the tide could soon turn in favor of munis.
Buoyed by a spate of mutual-fund-to-ETF conversions, active ETFs made their presence felt in 2024. That accounted for significant percentages of both inflows and launches.
Amid a volatile stretch for equities, muni bonds and related ETFs could garner renewed attention as shelters from the risk asset storm. Just look at the ALPS Intermediate Municipal Bond ETF (MNBD), which is higher by almost 1% year to date.
Long prized as a refuge for risk-averse income investors, municipal bonds have widely been highlighted as one corner of the bond market that could thrive this year. That's so even if the Federal Reserve proves reluctant regarding lowering interest rates.
For actively managed ETFs, 2024 was a record year of asset gathering. And the good times may keep going this year.
There have been recent increases by 10-year Treasury yields. And there's been talk that the Federal Reserve will tread cautiously this year regarding interest rate cuts.
Last year was a decent one for muni bonds and related exchange traded funds. The Federal Reserve unveiling its first interest rate cuts in four years helped the cause.