I’ve always been a big fan of actively managed bond funds as a way for investors to access risk-managed or alpha-generating strategies. Unlike active stock pickers, the best managers from the likes of PIMCO, DoubleLine, Guggenheim and Loomis Sayles have proven track records of adding value for their investors versus a passive benchmark. Fixed-income is still one of those asset classes where sector positioning, duration targeting and credit selection can make a huge impact on net returns.
Look back through my blog and you will see numerous references to some of my favorite funds like the DoubleLine Total Return Bond Fund (MUTF:DBLTX) or the PIMCO Income Fund (MUTF:PONDX). We have owned both for our clients and in our own accounts for years.
Both funds have proven to be worthy alternatives to well-known indexes such as the iShares Barclays Aggregate Bond Fund (NYSEARCA:AGG) or the Vanguard Total Bond Market ETF (NYSEARCA:BND). Lower volatility, better yields and more attractive net returns are just some of the highlights from these active bond funds since their inception.
That said, I’m constantly on the lookout for top-tier bond managers that make the leap to exchange-traded funds. This move typically brings with it lower management fees for investors along with the capability to access a capable and proven portfolio.
It’s this vigilance that brought the First Trust TCW Opportunistic Fixed Income ETF (NASDAQ:FIXD) onto my radar several months ago. This fund was released on the First Trust platform with TCW Investment Management as the sub-advisor. For those who may not be aware, TCW is a West Coast fixed-income manager that has been in existence since 1971 and has nearly $200 billion under management. Its managers have been around the block and know their stuff.
FIXD is an actively managed ETF that seeks to invest primarily in corporate and government investment-grade debt with the capability to carry some high-yield and floating-rate securities. It can also own derivatives (futures or swaps) to help reduce volatility or control specific risks. The benchmark they are seeking to beat is the Barclays U.S. Aggregate Bond Index and that the expected average duration of the portfolio will likely be within one year of the index.
Interpretation: We want to beat the benchmark, but we aren’t going to take insane bets that deviate too far from the expected return of a broadly diversified bond portfolio.
They envision this fund to be a potential core holding or even a supplementary tactical option in more sophisticated portfolios. The FIXD net expense ratio is listed at 0.55% — basically, right in line with what PIMCO and DoubleLine are charging.