Take an active approach to fixed income

Active fixed income ETFs help allow portfolio managers to adjust bond selection and portfolio exposures as market conditions evolve. By assessing credit quality, valuations and interest rate risks, managers can respond to changing opportunities while maintaining the transparency and trading flexibility of an ETF.

Active fixed income ETFs may appeal to investors seeking targeted credit exposure, flexible portfolio positioning or opportunities beyond an index. Unlike index strategies, active managers can adjust security selection based on credit fundamentals, valuations and market conditions, although this does not guarantee outperformance.

Bonds issued by different companies carry different levels of credit risk and offer different yields. Active credit selection involves assessing an issuer's financial strength, repayment capacity and bond valuation. It helps managers identify opportunities and manage exposure to credit risk, although it cannot eliminate losses.

Credit risk, changes to interest rates and/or issuer defaults will have a significant impact on the performance of fixed income securities. Potential or actual credit rating downgrades may increase the level of risk.

Active investment grade and high yield ETFs can play complementary roles in a fixed income portfolio. Investment grade strategies such as ECBA can support core credit allocations, while high yield strategies such as EYBA offer additional income potential with greater credit risk. Combining both can help investors to balance credit quality, income objectives and risk exposure.

Active fixed income ETFs can support different portfolio objectives, including core bond exposure, income generation and access to specialist credit markets. Investors may use investment grade strategies for core credit allocations and high yield strategies to seek additional income. Fund selection should reflect risk tolerance, investment horizon, costs and existing portfolio exposures.