The Best Active Bond ETFs for 2022 and Beyond (2024)

Choosing the right investment vehicle for your bond funds can be a daunting task, but we’re here to help. It’s 2022, and it might finally be time to add some active bond exchange-traded funds to your portfolio.

The pandemic-driven sell-off in early 2020 presented the biggest challenge yet for actively managed bond ETFs, but they held their own against--and many even beat--their mutual fund siblings. Still, as my colleague Ben Johnson has noted, significant market volatility can cause ETFs to trade at steep discounts to their net asset values, so investors should understand ETF premiums and discounts and how to best navigate them during turbulent times before investing.

For the past several years, investors have piled into actively managed ETFs in record numbers; depending on the investor, that may make sense. Actively managed bond ETFs sport many of the same benefits over actively managed bond mutual funds that their stock-picking counterparts do. Notably, their lower fees are a big draw, especially for do-it-yourself investors who may not have access to cheaper institutional share classes.

The Best Active Bond ETFs for 2022 and Beyond (1)

Equity ETFs are known for their tax-efficiency, but that's not the case with active bond ETFs, even compared with their active mutual fund counterparts. Regardless, most investors are still better off keeping their taxable fixed-income exposure in a tax-advantaged account, such as an IRA or 401(k), whenever possible. Even if you successfully sidestep capital gains, the very nature of bonds and the income they generate will translate to taxable distributions if they're in a regular account. As such, any sheltering of capital gains by ETFs is likely to be of less value to many fixed-income investors.

Still, taxable bonds remain a key part of investors' portfolios for their diversification and income components. So, let's take a closer look at our Morningstar Medalists for active bond ETF strategies and highlight our top picks in 2022 and beyond.

Our Top Active Bond ETFs

The table below shows U.S. active bond ETFs with a Morningstar Analyst Rating of Bronze or better, as of January 2022, along with each one's prospectus-adjusted expense ratio. As we have shown time after time, fees are the most proven predictor of future fund returns.

This list offers a diverse pool of active bond ETF options to choose from across several categories, which can be especially helpful for investors looking to broaden their fixed-income portfolios.

The Best Active Bond ETFs for 2022 and Beyond (2)

Source: Morningstar.

The Standouts

Below you'll find our highest-conviction active bond ETFs from the list, which we've awarded Analyst Ratings of Gold, along with their more expensive retail share class mutual fund siblings.

The Best Active Bond ETFs for 2022 and Beyond (3)

Source: Morningstar.

Fidelity Total Bond ETF FBND Fidelity launched this ETF in October 2014 hoping to imitate the success of its mutual fund sibling, Fidelity Total Bond FTBFX--and it has done just that. As seen above, the strategy's ETF and mutual fund retail shares are both rated Gold. This means we expect both vehicles' volatility-adjusted returns to beat their intermediate core-plus bond Morningstar Category as well as their category index over a full market cycle. Although they sport the same highly regarded team and process, there are a few meaningful differences in portfolio construction meant to address the liquidity needs of the ETF.

Both vehicles invest in U.S. Treasuries, investment-grade corporate credit, and agency mortgages, and the proportion allocated to each of these sectors varies depending upon the team's assessment of relative valuations across a broad universe that also includes high-yield credit, REITs, and emerging-markets debt. Additionally, both vehicles can hold up to 20% in below-investment-grade fare.

Unlike its mutual fund sibling, however, the ETF's higher liquidity standard means that it avoids securities that might clash with those needs, such as high-yield commercial mortgage-backed securities, collateralized mortgage obligations, or collateralized loan obligations.

These limits haven't damped returns much. From its inception through December 2021, FBND's 3.8% annualized return lagged the retail share class of its mutual fund sibling by roughly 10 basis points per year, mainly owing to falling behind when rates have risen, as they did in the first quarter of 2021. Much of that can be traced to the strategy’s comparatively lighter exposure to bank loans and CLOs, which have little sensitivity to interest rates. That said, the ETF has held up slightly better in credit and liquidity sell-offs, such as the pandemic-driven one in early 2020, given its general avoidance of bank loans and CLOs, which tend to be more vulnerable in dicey markets.

Regardless of these differences, Fidelity's commitment to ensuring there is ample liquidity in the ETF gives us confidence that it will continue to beat its peers and bogy over the long term, alongside its mutual fund sibling.

Pimco Enhanced Short Maturity Active ETF MINT Pimco launched this ETF in November 2009, intending to replicate the success of its mutual fund sibling, Pimco Short-Term PSHAX, which launched in January 1997. As noted in the table above, the ETF sports a Gold rating while the retail share class of its mutual fund sibling receives a Bronze. Although we expect both vehicles to beat the ultrashort bond category and the category index, we have a higher conviction in the ETF given its much cheaper fees. As with Fidelity's offerings, while these two sport the same highly regarded team, their goals and approaches are slightly different, and there are a few meaningful deviations in portfolio construction.

Similar to its open-end sibling, the ETF's aims are modest: Provide slightly better-than-cash returns while preserving capital. Manager Jerome Schneider and his team use Pimco's vast resources to identify mispricings at the short end of the yield curve, combining macroeconomic forecasting and bottom-up analysis to make interest-rate, yield-curve, sector, and issue-level decisions. The team has the expertise and resources to employ a wider range of sectors than many of its ultrashort bond category competitors.

Schneider follows a more constrained process here, though, which means taking on a bit less risk. The ETF doesn't use derivatives (which means Schneider won't take its duration much shorter than 0.3 years), avoids currency risk and high-yield corporate debt, and typically caps exposure to emerging-markets debt at 5.0%. By contrast, Pimco Short Term has had as much as 11.9% in emerging-markets debt in the past (March 2017).

MINT’s limits haven’t hampered absolute returns much, though, and have actually led to better volatility-adjusted returns. From the ETF’s inception through December 2021, its 1.4% return slightly lagged Pimco Short-Term, but its volatility-adjusted returns (as measured by Sharpe ratio) were much better. The ETF’s slightly more conservative approach has added the most value during liquidity crunches, such as the early 2020 sell-off. From Feb. 20 through March 23 that year, the ETF’s 3.2% loss was less severe than its mutual fund sibling’s 3.7% loss given its lighter exposure to less-liquid securities.

The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.

The Best Active Bond ETFs for 2022 and Beyond (2024)

FAQs

The Best Active Bond ETFs for 2022 and Beyond? ›

Disadvantages of Investing in Bond ETFs

When interest rates rise, bond prices typically fall, and this can lead to capital losses for investors in bond ETFs. The degree of interest rate risk depends on the duration of the bonds held in the ETF's portfolio.

What is the best bond ETF to buy? ›

9 of the Best Bond ETFs to Buy Now
Bond ETFExpense RatioYield to maturity
iShares 0-3 Month Treasury Bond ETF (SGOV)0.07%5.4%
iShares Aaa - A Rated Corporate Bond ETF (QLTA)0.15%5.3%
SPDR Bloomberg High Yield Bond ETF (JNK)0.40%7.9%
Pimco Active Bond ETF (BOND)0.55%5.8%
5 more rows
May 7, 2024

What is the most profitable bond in 2022? ›

The top three bond ETS to consider for 2022 are:
  • VanEck CEF Muni Income ETF (XMPT)
  • First Trust Municipal High Income ETF (FMHI)
  • VanEck Fallen Angel High Yield Bond ETF (ANGL)

What is the best actively managed ETF? ›

10 Best Actively Managed ETFs of May 2024
FundExpense Ratio
Invesco Russell 1000 Dynamic Multifactor ETF (OMFL)0.29%
Avantis International Small Cap Value ETF (AVDV)0.36%
VictoryShares Core Intermediate Bond ETF (UITB)0.38%
Motley Fool 100 ETF (TMFC)0.50%
6 more rows
May 6, 2024

Which ETFs performed best in 2022? ›

The 10 Best ETFs of 2022
TickerFundYTD Return
PXEInvesco Dynamic Energy Exploration & Production ETF79.17%
IEOiShares U.S. Oil & Gas Exploration & Production ETF72.90%
FENYFidelity MSCI Index Energy Index ETF71.58%
XLEEnergy Select Sector SPDR Fund71.31%
6 more rows

Why not to invest in bond ETFs? ›

Disadvantages of Investing in Bond ETFs

When interest rates rise, bond prices typically fall, and this can lead to capital losses for investors in bond ETFs. The degree of interest rate risk depends on the duration of the bonds held in the ETF's portfolio.

Which bond gives the highest return? ›

High Yield Bonds are a type debt security which are issued by corporates. They are also called as High Yield Corporate Bonds, Small Cap Bonds. These Bonds usually pay a higher interest rate because they have a lower credit rating(typically in the range of A+ to BBB).

What is the safest investment with the highest return? ›

These seven low-risk but potentially high-return investment options can get the job done:
  • Money market funds.
  • Dividend stocks.
  • Bank certificates of deposit.
  • Annuities.
  • Bond funds.
  • High-yield savings accounts.
  • 60/40 mix of stocks and bonds.
2 days ago

What is the safest bond to invest in? ›

Treasuries are generally considered"risk-free" since the federal government guarantees them and has never (yet) defaulted. These government bonds are often best for investors seeking a safe haven for their money, particularly during volatile market periods. They offer high liquidity due to an active secondary market.

Does Vanguard have a high-yield bond ETF? ›

The Vanguard High-Yield Corporate Fund invests in medium and lower-quality corporate bonds. The fund managers invest in what they consider to be higher-rated junk bonds.

What is the most successful ETF? ›

1. VanEck Semiconductor ETF. The VanEck Semiconductor ETF (SMH) tracks a market-cap-weighted index of 25 of the largest U.S.-listed semiconductors companies. Midcap companies and foreign companies listed in the U.S. can also be included in the index.

Which ETF has the highest return? ›

100 Highest 5 Year ETF Returns
SymbolName5-Year Return
FNGOMicroSectors FANG+ Index 2X Leveraged ETNs47.65%
GBTCGrayscale Bitcoin Trust45.56%
TECLDirexion Daily Technology Bull 3X Shares38.75%
SMHVanEck Semiconductor ETF33.41%
93 more rows

What is the most active ETF? ›

Most Popular ETFs: Top 100 ETFs By Trading Volume
SymbolNameAvg Daily Share Volume (3mo)
SQQQProShares UltraPro Short QQQ138,925,250
TQQQProShares UltraPro QQQ70,556,375
SPYSPDR S&P 500 ETF Trust69,589,984
SOXLDirexion Daily Semiconductor Bull 3x Shares69,112,570
96 more rows

Which ETF has the best 10 year return? ›

The best-performing ETF in the last 10 years was VanEck Semiconductor ETF (SMH).

What is the best ETF to invest $1000 in? ›

Vanguard S&P 500 ETF

ETFs are convenient and effective, to say the least. If you're interested in investing in an ETF and have $1,000 that you can spare to invest -- meaning you already have an emergency fund saved and have paid down any high-interest debt -- the Vanguard S&P 500 ETF (VOO 0.09%) is a great option.

What is the safest ETF? ›

Vanguard S&P 500 ETF

Exchange-traded funds (ETFs) are one of the safer types of investments out there, as they require less effort than investing in individual stocks while also increasing diversification.

Is buying a bond ETF a good idea? ›

With generally lower expense ratios than mutual funds, bond ETFs are a cost-effective way to access the bond market. Their daily transparency and the ease of tracking an index can be particularly appealing for those who value cost efficiency and operational simplicity.

Are bond ETFs a good investment? ›

A bond ETF can provide you immediate diversification, both across your portfolio and within the bond portion of your portfolio. So, for example, by adding a bond ETF to your portfolio, your returns will tend to be more resilient and stable than if you had a portfolio consisting of only stocks.

Is it better to buy an I bond or an ETF? ›

For many investors, investing in the right bond funds can be a better option than holding a portfolio of individual bonds. Bond ETFs can provide better diversification — often for a lower cost — can offer higher liquidity, and can be easier to implement.

What is the best long-term bond ETF? ›

Here are the best Long-Term Bond funds
  • SPDR® Portfolio Long Term Corp Bd ETF.
  • iShares 10+ Year Invmt Grd Corp Bd ETF.
  • Vanguard Long-Term Corporate Bd ETF.
  • Invesco Taxable Municipal Bond ETF.
  • iShares Core 10+ Year USD Bond ETF.
  • Vanguard Long-Term Bond ETF.
  • BondBloxx BBB Rated 10+ Yr Corp Bd ETF.

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