We’re leaning into active fixed income ETFs — Why you should, too

In fixed income, mutual funds have bucked the trend. About three quarters of fixed income assets remain in mutual funds versus exchange-traded funds (ETFs), and nearly 80% of all fixed income mutual fund assets are active, versus just 12% of fixed income ETF assets[1]. That tells me there is a clear investor preference for active management when it comes to fixed income, and investors who prefer the ETF vehicle may have been reluctant to adopt fixed income ETFs.

That might feel paradoxical to you, but here’s why it doesn’t surprise me.

Until we launched our first active fixed income ETF early in 2022, there weren’t many active fixed income ETFs available in the market. I think that’s one of the reasons our recent survey of over 400 financial professionals found they allocate less than 4% of the assets they manage to active fixed income ETFs (despite fixed income comprising 40% of a traditional 60% equity-40% fixed income portfolio). Historically, financial professionals haven’t had many options in this space.

Our survey also revealed that the benefits of active fixed income ETFs aren’t well understood by financial professionals, half of whom expressed they did not understand how to use them in portfolios.

Capital Group is looking to change that.

I was recently at the ETF Exchange conference in Miami where I spoke to advisors, reporters and other industry stakeholders about the attractive benefits of active fixed income ETFs. Much like their equity and passive counterparts, they are transparent (meaning holdings are disclosed daily), tax efficient (meaning fewer or no capital gain distributions, learn more here ) and liquid since they trade daily on exchange. What’s more, in the case of Capital Group’s six available active fixed income ETFs, they can sit at the core of an investor’s portfolio and seek to smooth out the ride during times of market stress — at a lower cost than you might expect.

While not all active managers are created equal, Capital’s approach to active management means investors in our active fixed income ETFs can be assured we are applying the same rigorous, research-driven analysis for which we are known when selecting bonds to include in our mutual funds.

As the industry starts to become better acquainted with these benefits, I think it’s just a matter of time before the robust demand we’ve seen for active fixed income mutual funds extends to the ETF equivalent. It is for that reason that I believe active fixed income ETFs will be the ETF flows story of 2024, and financial professionals would do well to be prepared to discuss what this asset class can do for their clients.

I also believe Capital Group is poised to lead in the category. As of January 31, we have over $500B in actively managed fixed income assets across our mutual funds, ETFs and other vehicles. We were first in fixed income flows in 2023 versus all other active managers, and that momentum has continued early in the new year[2]. We boast one of the fastest growing suites in the industry with 14 ETFs and started the month of March with more than $22B in assets under management[3]. I am so proud of our team and what we’ve accomplished after just two years in market; only 7% of all ETF issuers — active and passive combined — have reached $20B in assets under management, according to Morningstar data[4].

You and your clients don’t want to miss out. We’re leaning into active fixed income ETFs, and I encourage you to do the same.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

Capital Group exchange-traded funds (ETFs) are actively managed and do not seek to replicate a specific index. ETFs are bought and sold through an exchange at the then current market price, not net asset value (NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV when traded on an exchange. Brokerage commissions will reduce returns. There can be no guarantee that an active market for ETFs will develop or be maintained, or that the ETF’s listing will continue or remain unchanged.

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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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On or around July 1, 2024, American Funds Distributors, Inc. will be renamed Capital Client Group, Inc.

[1] Morningstar Direct US open-end & ETF ex Money Market Funds ex Fund of Fund ex Feeder, as of January 2024.

[2] Morningstar Direct US open-end & ETF ex Money Market Funds ex Fund of Fund ex Feeder, as of January 2024.

[3] Morningstar Direct US open-end & ETF ex Money Market Funds ex Fund of Fund ex Feeder, as of January 2024.

[4] Morningstar Direct, US ETFs only as of Jan/Feb 2023