The Rise of Active Fixed Income ETFs

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%

Why BlackRock is a go-to-provider for Active Fixed Income ETFs

When it comes to fixed income ETFs, experience and scale matter. BlackRock is the world’s largest fixed income manager⁷ — combining deep research capabilities, market-leading technology, risk management, resulting in a long track record of managing bond portfolios across every market environment.

What helps set BlackRock apart is its ability to offer both core index exposure and truly active strategies — under one roof. BlackRock manages a growing platform of active fixed income ETF strategies, one that is growing to meet the diverse needs of today’s investors.

1. Expertise: BlackRock's fixed income team is comprised of experienced portfolio managers and analysts who leverage their deep market knowledge to help make informed investment decisions.
2. Innovation: BlackRock aims to continuously innovate to provide investors with cutting-edge investment solutions, including a wide range of active ETFs.
3. Performance: BlackRock's active ETFs have a track record of delivering strong performance⁸, driven by rigorous research and disciplined investment processes.

Use Case: Customization at the Core

BINC and AGG seek to deliver positive returns and can lower risk.

Since launching on 5/19/2023, the BlackRock Flexible Income ETF (“BINC”) has delivered strong results, delivering 8.5% annualized returns⁹. The fund’s flexible strategy, utilizing a dynamic yield targeting framework, allows it to seek consistent income by strategically positioning across the curve, countries, sectors, and securities, amid a changing macro backdrop. BINC leverages BlackRock’s global platform to take informed bets across a diversified set of assets, including harder to reach parts of the bond market such as global credit, CLOs and securitized assets.

While BINC looks to maximize income across different market cycles by focusing on the Plus sectors, investors can consider complementing their exposures with iShares Core U.S. Aggregate Bond ETF (AGG). AGG seeks to track the Bloomberg US Aggregate index which can anchor your portfolio with broad based IG bonds, across USTs, IG corporates and Agency MBS. As a hypothetical example, if combined, BINC and AGG, historically would have delivered better returns, lower risk, and reduced fees compared to the average fixed income fund in the Morningstar Core Plus category. The cost for a 50/50 blend of BINC and AGG is 51bp below that of the average fund in the Core Plus category (0.25% vs. 0.76%, respectively)¹⁰, while also diversifying risk across government, corporate and securitized exposures. A hypothetical AGG / BINC combination can offer investors the strength of bond funds, achieving a balanced mix of efficient beta and targeted active bets within the same investment toolkit.

This material is provided for educational purposes only and is not intended to constitute investment advice or an investment recommendation.

Combining ETF efficiency with active management potential

Fixed income ETFs have traveled a long path in just over twenty years: from simple beta tools to central pillars of modern bond markets. Active fixed income ETFs represent the next phase of this evolution, marrying the benefits of the ETF structure with the flexibility and alpha potential of discretionary management.

For professional investors navigating today’s market, the timing may be compelling. Rate volatility, credit dispersion and liquidity demands may be creating opportunities that demand active judgment. At the same time, the ETF wrapper offers operational and cost advantages that legacy vehicles may not be able to match.

In short: the ETF is no longer just a delivery mechanism for index exposure. It is becoming a mainstream vehicle for active strategies. For investors seeking both efficiency and the potential for outperformance, active fixed income ETFs could be worth a close look.

Link to Active FI ETF Brochure: Active Fixed Income ETFs.