Bond-focused exchange-traded funds (ETFs) capitalize on two strategies commonly employed by investors seeking a low-lift, passive approach to their investments. ETFs are, by nature, an appealing category of investment for those seeking to take a hands-off approach, given that they allow investors to offload the work of portfolio selection, management, and rebalancing. Bonds tend to be buy-and-hold investments that retail investors use for stable income streams, particularly investors with a limited risk appetite, or in times when stocks are unusually volatile.
Given these factors, it may surprise investors to know that a crop of actively managed bond ETFs is distinguishing itself. Indeed, active management may favor bond investments in particular, given inefficiencies in the bond space compared to other parts of the market and massive bond indices that can be difficult to replicate—and the opportunities that these factors create for investors willing to make more frequent trades. Analysis from PIMCO suggests that active bond funds outperform their passive counterparts for two-thirds of rolling 10-year periods.
