Take an active approach to fixed income

Actively managed bond ETFs combine professional investment management with the flexibility of an ETF. Fund managers research and select bonds, rather than simply following an index. This allows them to respond to changing market conditions, although active management does not guarantee better returns.

Active bond ETFs have managers who choose which bonds to buy and sell based on research and market conditions. Index bond ETFs aim to track a particular bond index. Both can be bought and sold on a stock exchange, but their investment approach, risks and costs may differ.

Not all bonds carry the same risk. Companies and other organisations that issue bonds have different financial strengths and abilities to repay their debts. Active fund managers assess these differences to identify investment opportunities and manage risk, although losses are still possible.

Risk management cannot fully eliminate the risk of investment loss.

Investment grade bond ETFs focus on bonds with higher credit ratings, which generally carry a lower risk of default. High yield bond ETFs invest in lower-rated bonds that typically offer greater income potential but carry more risk of default. ECBA focuses on European investment grade corporate bonds, while EYBA focuses on European high yield bonds.

Active fixed income ETFs can help investors diversify their investments, gain exposure to different bond markets and seek income. Higher-rated bond strategies may support the foundation of a bond portfolio, while high yield strategies typically offer additional income potential with greater risk. The right choice depends on your investment goals, time horizon and attitude to risk.

Diversification and asset allocation may not fully protect you from market risk.