If 2024 offered investors a live bond market again, 2025 could offer an even wider fixed income opportunity set via global bonds. Global bonds may not be the most exciting category for investors, but they could be one of the most appealing fixed income segments in the New Year with the right approach. Active global fixed income, specifically, has a certain appeal, given active management’s particular strength in bonds and the diversity of market conditions abroad.
Why look to active for investing in bonds? Passive funds tend to struggle to appropriately replicate their indices when investing in debt securities like bonds. For example, should a bond be called before an index fund expects it to be called, an active fixed income ETF may be better positioned to adjust.
For a global fixed income view, specifically, active also stands out, as many of the world’s central banks are diverging in terms of monetary policy. Japan raised interest rates last year, while the U.S., European Central Bank, Bank of Canada and Bank of England lowered theirs, but to varying degrees. Emerging markets in Asia, Latin and South America remain a patchwork with some holding interest rates steady, others easing and still others raising. This creates idiosyncratic opportunities in each market for active managers who seek the best opportunities around the world.
With active management as the route in, investors should be able to get fixed income diversification from the above markets and many others. Plus, an active manager has the flexibility to invest in both government and corporate bonds taking currency risk into consideration, as well.
An active global fixed income ETF like the Capital Group World Bond Select ETFTM (Canada) (CAPW) offers exposure therein. CAPW aims to provide a high level of total return with its investment approach. That total return includes income generated via the fund itself as well as an increase to the value of the ETF’s holdings. Together, its research-intensive approach to global bonds – government and corporate – could help investors boost their fixed income results in the new year.