With bond markets behaving as they have so far in 2022, investors are looking for ways to mitigate risk and escape volatility. While the latter can be more difficult while remaining invested in the markets, the transfer of risk control to a professional can be achieved in the former by using active management.
“Active portfolio managers believe they can leverage their individual skills and experience – often complemented by a team of skilled equity analysts – to exploit market inefficiencies and generate above-benchmark returns,” wrote Forbes adviser Rebecca Baldridge in KOAM News Now article.
“A closer look at the Morningstar report shows that the success of active versus passive management varies significantly by fund type,” Baldridge added.
Funds that used active management showed that the strategy could work in specific sectors, including real estate funds, which outperformed their passive peers. Other assets where active management particularly shined were high-yield debt, where funds outperformed passive funds 59.5% of the time.
Active management can give investors dynamic market exposure, allowing positions to be changed on the fly when markets warrant adjustments. This is especially the case now, as volatility has a stranglehold in bond markets, which is also seen in equity and cryptocurrency markets.
“The active investor has the potential to shift to a defensive position or to holdings, such as cash or government bonds, during bear markets to avoid catastrophic losses,” said Brian Stivers, investment adviser and founder of Stivers Financial Services in Knoxville, Tenn, in a Forbes article highlighting the pros and cons of active and passive strategies.
Given the benefits of active management, especially in the current market environment, investors who want exposure to this strategy can look to ETFs such as the T. Rowe Price Total Return ETFs (EARLY). The fund seeks to provide maximum returns to investors primarily through income and capital appreciation by investing in a diversified mix of bonds and debt securities.
EARLY is built to be flexible to changing market conditions while seeking strong returns. The fund invests primarily in mid-term US bonds, but has the freedom to buy bonds across the full global opportunity and maturity spectrum.
Examples could include debt securities issued by the US government and its agencies, corporate bonds, bank loans, and various types of mortgage and asset-backed securities. EARLY is ideal for the investor looking for a more core diversified strategy for total returns via price appreciation and income. The portfolio goes beyond static indices, with the flexibility to underweight or overweight duration to actively manage interest rate risks and other market dynamics.
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