Why bond investors may benefit from actively managed mutual funds and ETFs
Active funds have outperformed in several fixed income categories.
- Passive index investment strategies are designed to mirror the composition and performance of a benchmark index. In contrast, active strategies can differ from the index in the pursuit of better returns.
- Active bond funds and ETFs have the potential to outperform passive index funds, using intentional approaches for selecting bonds or setting sector weights.
- Investment firms with deep resources can support the efforts of macroeconomic, fundamental, and quantitative research, and expert trading, all of which may help actively managed funds outperform their benchmarks.
- Several additional active strategies for bonds may also increase opportunities for total return in excess of the benchmark, in a variety of interest rate, volatility, and credit environments.
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Past performance is no guarantee of future results.
Fidelity and its representatives may have a conflict of interest in the products or services mentioned in this material because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and/or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services.
Views expressed are as of the date of the white paper, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
Investing involves risk, including risk of loss. Neither asset allocation nor diversification ensures a profit or guarantees against a loss. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. All indices are unmanaged, and performance of the indices includes reinvestment of dividends and interest income and, unless otherwise noted, is not illustrative of any particular investment. An investment cannot be made in any index.
Lower-quality debt securities generally offer higher yields but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.
In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Any fixed income security sold or redeemed prior to maturity may be subject to loss. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.