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.
Active management can allow fund providers to respond most effectively to shifts in interest rates and credit cycles, and to seek discounts among new bond issues. Active managers may also be able to avoid companies that are most indebted, while some passive bond indices tend to focus on those firms. All of these are reasons why the two active bond funds below may be worth a closer look for those seeking to bolster their bond income.
A Wide-Ranging Active Bond Fund Able to Deliver on Both Dividend Yield and Returns
The PIMCO Multisector Bond Active ETF (NYSEARCA: PYLD) takes a broad, multisector approach to bond selection, allowing it to be a one-stop shop investment for bond investors. PYLD leans towards securitized bonds—tradable securities based on mortgages, auto loans, credit card debt, and similar—but also has healthy allocations of investment-grade and high-yield credit, as well as exposure to U.S. government and emerging markets bonds, among others.
The fund has some 2,200 holdings, allowing it to diversify across interest rate and sector exposures, credit ratings, and other factors as well. The bulk of PYLD's bond holdings have maturities ranging from 3-5 years or 5-10 years.
A lack of limitations on maturity and credit ratings allows the fund's managers full freedom to rotate across different portions of the bond space.
This flexibility has allowed PYLD to achieve an impressive dividend yield of 6.3%, while also managing a total return of about 9% in 2025—quite high for a fund focused on bonds only.
With 3.5 million in one-month trading volumes on average, PYLD is also relatively easy for traders to get in and out of, should the fund's portfolio shift too much for any individual investor's taste.
A Star Manager's Active Bond Fund Is Diversified, Performs Well, and Comes Cheap
Another active bond fund that benefits from being unconstrained by traditional benchmarks, the iShares Flexible Income Active ETF (NYSEARCA: BINC) is led by Rick Rieder, Morningstar's 2023 Outstanding Portfolio Manager. The fund's purview is, like PYLD's, quite broad, seeking only to take a multisector approach to maximize income potential.
In practice, this means that BINC holds a mix of agency residential and non-agency mortgages, non-U.S. credit, high-yield credit, emerging markets bonds, CLO securities, and more. In cases in which one of the riskier corners of the bond market appears untenable, managers can simply reduce exposure there and rotate investments elsewhere.
One particularly attractive feature of BINC is its expense ratio of 0.4%, which is significantly lower than PYLD's at 0.64%. In fact, this fee makes BINC one of the most affordably-priced multisector bond funds available overall.
BINC's broad geographic focus may also appeal, as nearly a third of the fund is given over to non-U.S. bonds. Distribution across credit qualities and, to some extent, across maturities helps to offer diversification within a single bond fund investment. Investors should note that the bulk of maturities represented in BINC's portfolio tend to be between two and 10 years.
BINC's dividend yield of 5.9% comes in just behind PYLD's but is still very compelling. At the same time, the fund has managed to provide total returns of almost 6% in the last year, achieving its secondary goal of price appreciation on top of passive income.
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The article "2 Active Bonds ETFs Rise to the Top Early in 2026" first appeared on MarketBeat.
