MW Active-bond ETFs see record demand. Did Vanguard's fee cuts include such funds?

By Christine Idzelis

Investors appear hungry for actively managed bond ETFs

Hello! This Week's ETF Wrap digs into bond ETFs and Vanguard's fee cuts.

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Investors have upped their interest in actively managed bond exchange-traded funds, pouring record capital into them in January as some paid up in hopes of stronger returns.

Active-bond ETFs listed in the U.S. attracted an unprecedented inflow of $17 billion last month, according to Matthew Bartolini, head of Americas ETF research at State Street Global Advisors. Overall demand for fixed income was strong, with bond ETFs broadly gathering $37 billion in January to mark their second-highest monthly inflow ever, as investors appeared hungry for exposure to riskier credit assets, Bartolini found.

"Actively managed bond strategies have had strong performance trends," he said in a phone interview. They seem well set up to manage risk "given we have pretty elevated rate volatility" as well as "tight credit spreads," Bartolini said, referring to worries over the historically low spreads - or compensation - that corporate bond investors are getting over comparable Treasurys.

While index-tracking bond ETFs are a popular way for investors to get low-cost core fixed-income exposure in their portfolios, increasingly they are turning to more expensive active managers who aim to outperform market benchmarks.

Vanguard earlier this week announced sweeping fee cuts across many of its funds, including bond ETFs - but actively managed bond ETFs were not included in the long list of funds that Vanguard cited as now having lower annual expense ratios, said Aniket Ullal, head of ETF research and analytics at CFRA Research, in a phone interview.

"None of the active ones had fee cuts," Ullal told MarketWatch of Vanguard's actively managed fixed-income ETFs. Vanguard's active-bond ETFs are relatively small compared to the firm's passively managed funds, he said.

"Our active fixed-income ETFs have an average expense ratio of just 10.5 basis points, among the lowest among leading ETF issuers," a spokesperson for Vanguard said in an email. "By striving to keep the costs of investing low, Vanguard helps investors keep more of their returns."

Looking at the fixed-income ETFs that Vanguard announced will see lower expense ratios, Ullal found a total of 16 tickers that had one to five basis points shaved off their fees. For example, the Vanguard Intermediate-Term Bond ETF BIV, which tracks an index of investment-grade bonds with an average maturity of five to 10 years, saw its expense ratio lowered to 0.03% from 0.04%.

Vanguard has pushed into actively managed bond ETFs, announcing last month that it planned to expand its lineup with the launch of the active Vanguard Short Duration Bond ETF (VSDB) in early April.

Alongside Vanguard, BlackRock is a major competitor in bond ETFs in terms of assets under management and offering low-cost funds, said Ullal.

"Our expense ratio for active fixed-income funds is slightly lower than the average expense ratio of our competitors' index funds," Vanguard's spokesperson said. "And our average expense ratio for index fixed-income ETFs is just 3.7 basis points."

'Really strong January'

BlackRock "had a really strong January" for bond ETF inflows, said Steve Laipply, the firm's global co-head of iShares fixed income ETF, by phone.

He said BlackRock attracted about $13 billion across its U.S.-listed exchange-traded funds targeting fixed income, with the iShares 0-3 Month Treasury Bond ETF SGOV receiving the most flows at around $3 billion.

BlackRock has been recommending shorter-duration bonds to avoid volatility in long maturities running 10 years or more, as well as "plus sector" opportunities beyond the broad investment-grade exposure captured by traditional core funds such as the iShares Core U.S. Aggregate Bond ETF AGG.

For example, the actively managed iShares Flexible Income Active ETF BINC has flexibility to invest across the bond market's sectors globally including such areas as mortgages, collateralized loan obligations, high-yield debt and investment-grade credit.

The fund returned a total 5.8% in 2024, trouncing the slightly more than 1% total gains last year for both the index-tracking iShares Core U.S. Aggregate Bond ETF and Vanguard Total Bond ETFBND.

The iShares Flexible Income Active ETF also widely beat the active Vanguard Core Plus Bond ETF VPLS, which has a lower fee but posted a smaller total return of 2.7% in 2024, according to FactSet data.

The Vanguard Core Plus Bond ETF, which the firm listed in late 2023, has an expense ratio 0.2% and assets under management exceeding $350 million, according to FactSet data.

BlackRock's iShares Flexible Income Active ETF, which also launched in 2023, has a higher fee of 0.52%. A portion of that is being waived through June 30, 2026, bringing its net expense ratio to 0.4%, the firm's website shows. The fund had more than $7.5 billion in assets as of Feb. 5.

Investors last month poured a record $7.5 billion into ETFs that hold leveraged loans and provide exposure to CLOs, according to Bartolini. CLOs buy leveraged loans.

Last week, BlackRock announced the launch of the actively managed iShares BBB-B CLO Active ETF BCLO to primarily invest in slices of CLOs rated BBB+ to B-. That's after in early 2024 it launched the active iShares AAA CLO Active ETF CLOA to target the safest portions of CLOs.

Janus Henderson's actively managed AAA CLO ETF, which trades under the ticker JAAA, returned a total 7.4% in 2024, according to FactSet data.

"In theory, investors should be willing to pay more for active funds on the assumption that those funds can beat the market," said Ullal. "As we know, that doesn't always happen."

As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good...

   Top performers                                                                                                                                                            %Performance 
   Amplify Junior Silver Miners ETF                                                                                                                                          9.5 
   iShares MSCI Global Gold Miners ETF                                                                                                                                       8.9 
   VanEck Junior Gold Miners ETF                                                                                                                                             8.8 
   Global X Silver Miners ETF                                                                                                                                                8.4 
   VanEck Gold Miners ETF                                                                                                                                                    8.3 
   Source FactSet data. Start date: Jan. 29. End date: Feb 5. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater 

...and the bad

   Bottom Performers                   %Performance 
   iShares Ethereum Trust ETF          -12.0 
   Grayscale Ethereum Trust ETF        -12.0 
   Grayscale Ethereum Mini Trust ETF   -11.9 
   Fidelity Ethereum Fund ETF          -11.9 
   ProShares Bitcoin ETF               -10.3 
   Source FactSet data 

New ETFs

-- BlackRock announced Feb. 5 the launch of two money market exchange-traded funds, "including the industry's first prime money market ETF." The new funds are the iShares Prime Money Market ETF PMMF and the iShares Government Money Market ETF GMMF.

-- Charles Schwab's asset management arm said Feb. 5 that it launched the actively managed Schwab Core Bond ETF SCCR, which will invest in debt such as "corporate bonds, taxable municipal bonds, mortgage pass-through securities, commercial mortgage-backed securities, asset-backed securities, U.S. Treasuries, and other government-related bonds."

-- Thornburg Investment Management announced on Feb. 5 the listing of two actively managed fixed-income ETFs, the Thornburg Core Plus Bond ETF TPLS and Thornburg Multi Sector Bond ETF TMB.

-- Cohen & Steers said Feb. 5 that it launched three active ETFs including the Cohen & Steers Real Estate Active ETF CSRE, Cohen & Steers Preferred and Income Opportunities Active ETF CSPF and Cohen & Steers Natural Resources Active ETF CSNR.

-- Janus Henderson Investors announced on Feb. 5 the launch of the Janus Henderson Transformational Growth ETF JXX, a fundamental active equity ETF.

-- Simplify Asset Management said Feb. 4 that it launched the Simplify Currency Strategy ETF FOXY, "an actively managed fund that takes long and short positions in foreign currencies."

Weekly ETF reads

-- Vanguard is making it even cheaper to invest in ETFs. Why investors should take note (MarketWatch)

-- This ETF briefly beat the S&P 500 in 2025. Why one analyst remains cautious. (MarketWatch)

-- Trump Media takes step toward launch of 'America First' themed ETFs (MarketWatch)

-- US ether ETFs hit record volume as Trump tariffs rattle market (Bloomberg)

-- Franklin Templeton seeks SEC approval to launch new crypto index ETF (Reuters)

-- Want to double your exposure to the Trump meme coin? There's an ETF in the works for that. (The Wall Street Journal)

-Christine Idzelis

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February 06, 2025 20:24 ET (01:24 GMT)

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