Over the past two decades, bond ETFs have helped reshape the way investors access bond markets. What began as a vehicle for broad index exposure has evolved into a vital source of price discovery, liquidity and portfolio efficiency. Today another stage of innovation is underway: the rapid growth of actively managed fixed income ETFs. These vehicles combine the well-established benefits of the ETF wrapper with the discretion and alpha potential of active portfolio management – a development that is especially relevant in today’s markets.
The evolution of fixed income ETFs in the US
The first US bond ETFs launched in 2002, offering investors simple exposure to Treasuries and investment grade bonds1. Their early appeal was straightforward: low cost, intraday tradability, and operational efficiency relative to individual bonds or mutual funds.
Adoption accelerated during periods of market stress, when ETFs demonstrated their utility as liquidity providers. During the 2008 financial crisis, the 2013 “taper tantrum”, the 2020 Covid liquidity shock, and the 2022 inflation-driven selloff, bond ETFs consistently offered real-time pricing and an efficient secondary market, even as underlying cash markets became dislocated. More recently, the tariff-driven volatility of April 2025, once again underscored their role in price discovery2.
This track record likely built trust among institutional and retail investors alike, fueling innovation. As ETFs have grown more integral to fixed income portfolio construction, they now serve as essential building blocks to holistic fixed income allocations3. We believe the natural next step in innovation has been to wrap active management strategies within the ETF wrapper, reflecting demand for precision, flexibility and differentiated return potential.
What are active fixed income ETFs?
Unlike ETFs that seek to track an index, active bond ETFs generally seek to outperform an index. Portfolio managers can make decisions on security selection, duration positioning, credit quality, sector tilts and curve management based on their market views without the constraints of seeking to track a benchmark.
In addition to this flexibility, these funds retain all the structural advantages of ETFs:
- Intraday liquidity: investors can trade them throughout the day on exchange, unlike traditional mutual funds.
- Transparency: most active fixed income ETFs publish daily holdings, a significant improvement in clarity relative to traditional active vehicles.
- Tax efficiency: for those ETFs that employ the in-kind creation and redemption process, capital gain distributions may be mitigated.
- Operational ease: trading bond exposure in an equity wrapper allows for ease to trade on exchange and can be incorporated into portfolio models seamlessly.
The umbrella of active strategies can vary widely. Some funds operate as benchmark-aware “core bond” portfolios with modest flexibility, while others take an unconstrained or absolute return approach, drawing from global credit, emerging markets, or securitized assets. Further, the ETF wrapper has also lowered the barrier to accessing strategies that were once the domain of institutional accounts, in areas such as bank loans or CLOs4.
For investors, the combination is compelling: the potential for active alpha generation delivered in a familiar, liquid and transparent format.
Active bond ETFs have broken through $1bn of AUM5 (as of 09/04/25) and have captured over $100bn of flows this year, or 40% of all fixed income ETF flows YTD (as of 09/04/25)6. The number of active bond ETFs has now overtaken index ETFs (485 vs. 395, respectively), with active new launches representing over 60% of all product launches.
Figure 1: Active FI ETF growing at a 5yr CAGR of 37%
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