As Active Bond ETF Demand Picks Up, Here Are 2 Options

According to Trackinsight's Global ETF Survey 2025, active bond ETFs are gaining traction, representing the majority of new bond ETF launches globally in 2024 with 269 active launches versus 250 passive. Assets in active bond funds have grown from $233 billion in 2023 to $398 billion by early 2025, now comprising 15% of the market, up from 9% in 2019, as investors seek flexibility, credit selection, and better duration targeting; Vanguard's Core Bond ETF (VCRB) and Core Tax-Exempt Bond ETF (VCRM) are highlighted as options with low expense ratios of 0.10% and 0.12%, respectively.

Analysis

The fixed income ETF landscape is undergoing a significant shift, marked by the accelerating adoption of active management strategies, as highlighted by Trackinsight’s Global ETF Survey 2025. Active bond ETFs constituted the majority of new bond ETF launches globally in 2024, with 269 active funds compared to 250 passive ones. This trend is further substantiated by the substantial growth in assets under management for active bond funds, which surged from $233 billion in 2023 to an estimated $398 billion by early 2025. Consequently, their market share has expanded from 9% in 2019 to 15%. This increasing preference is driven by investors seeking enhanced flexibility, precise credit selection, and more effective duration targeting. Additional factors contributing to this growth include the potential for outperformance, lower fees relative to traditional active mutual funds, and improved risk management capabilities. Illustrating this trend, Vanguard offers specific active ETF options: the Vanguard Core Bond ETF (VCRB) provides diversified exposure to the U.S. investment-grade bond market, including mortgage-backed and corporate securities, with a 30-day SEC yield of 4.69% as of June 2 and a low expense ratio of 0.10%. For investors interested in municipal bonds, the Vanguard Core Tax-Exempt Bond ETF (VCRM) offers an actively managed portfolio, with 90% of its holdings in investment-grade munis as of June 2, a 30-day yield slightly above 4%, and an expense ratio of 0.12%. Both funds exemplify the cost-effectiveness cited as a key benefit of active ETFs.

Key Decisions for Investors

• Investors should evaluate the growing active bond ETF segment given the documented increase in launches and assets, as active management may offer advantages in navigating current fixed income markets.
• Consider the Vanguard Core Bond ETF (VCRB) for actively managed exposure to the U.S. investment-grade bond market or the Vanguard Core Tax-Exempt Bond ETF (VCRM) for active municipal bond strategies, noting their competitive yields and low expense ratios of 0.10% and 0.12% respectively.
• Assess whether the pursuit of flexibility, specific credit selection, duration management, and potential for risk-adjusted outperformance through active bond ETFs aligns with individual portfolio objectives and risk tolerance.