The benefits are clear: active management provides managers with the flexibility to navigate fixed income risks as markets change, while also providing the potential to earn excess returns—on top of the enhanced liquidity, better price discovery and daily transparency provided by the ETF wrapper itself.

Fixed income ETFs have helped to transform global bond markets

Over the last two decades, the introduction of a diverse range of fixed income exchange-traded funds (ETFs) has helped to transform the global fixed income market, providing investors with cost-effective exposure to a range of liquid and diversified bond portfolios that can be easily bought and sold throughout the day on major exchanges.

• Greater liquidity, especially during market stress

ETFs are traded on exchanges, allowing investors to buy or sell shares at any time during the day. These exchanges act as centralised markets, providing efficient and transparent trading. Secondary markets enhance liquidity, enabling large trades at low costs when bid-ask spreads are narrow. Market makers can access the primary market to create or redeem shares, offering more liquidity than the ETF’s average daily volume.

ETFs have had an impressive track record in the bond markets, helping to boost liquidity, provide more accurate pricing, and enhance transparency and access.

• Price discovery

Fixed income ETFs often trade at a small premium to net asset value (NAV), because ETF NAVs are marked at the bid side of bonds. While premiums can also be caused by other factors, such as investor positioning and transaction costs, they offer valuable insights into bond valuations. This intraday price discovery enhances efficiency, particularly in less liquid fixed income sectors and during market stress, when an ETF’s market price may show higher premiums or discounts, reflecting bond values more accurately and quickly than its NAV.

• Daily transparency and access

UCITS ETFs disclose their holdings daily. Daily disclosure of ETF holdings provides a clear view of the underlying securities and enables investors to easily perform portfolio attribution to analyse their investment’s performance. Investing in an ETF simply requires access to a brokerage account and enough funds to purchase one share.

The future of fixed income ETFs is here, and it’s active

Fixed income ETFs first began to bring their benefits to investors in 2002. Initially, they were exclusively passive vehicles, mostly used by asset allocators as low fee building blocks, and by model managers to complete portfolios.

More recently, however, the bond market has undergone another evolution with the growth in popularity of actively managed fixed income ETFs. While benefiting from the same liquidity, price discovery and transparency benefits described above, active fixed income ETFs also equip specialist portfolio managers with the flexibility they need to manage risks, capture market inefficiencies, and access areas of the bond market that are not accessible to passive index funds.

As investors come to recognise the benefits of taking an active approach to fixed income investing, flows into active fixed income ETFs are rising fast. So far in 2025, as of 7 August, active fixed income ETFs globally have received $100 billion in flows, out of overall flows of $295 billion. In other words, around a third of all flows globally into fixed income ETFs are now directed towards active strategies – which is up from only around 10% just five years ago. Additionally, in the US, active fixed income ETFs made up 18% of active ETF launches in the past 12 months, while in Europe the proportion was even higher, with active UCITS fixed income ETFs accounting for 41% of launches.

This move towards active fixed income ETFs shows no signs of slowing down. According to the TrackInsights 2025 Global ETF Survey, 82% of ETF investors globally expect to increase their exposure to actively managed bond ETFs, underscoring the pivotal role that active management plays in navigating the complexities of the fixed income market. The latest TrackInsights Survey also highlights an ongoing shift in preferred investment strategies, with two-thirds of investors choosing either a pure active approach, or a blend of active and passive ETFs, when it comes to their fixed income allocations.

As more investors choose active management for their bond allocations, active strategies are set to help drive the next leg in fixed income ETF growth. By 2030, the global fixed income ETF market overall is on target to reach more than $6 trillion in assets under management, of which $1.7 trillion would be allocated to active fixed income ETFs at current growth rates (source: From Evolution to Revolution: The Power of Active Fixed Income ETFs“, J.P. Morgan Asset Management, December 2024).

Active fixed income ETFs offer several key benefits over passive

Why are investors increasingly choosing actively managed ETFs for their bond allocations? One reason is the sheer number of security selection opportunities that global bond markets provide for experienced managers to exploit. While the global fixed income market and global equity market are of similar size ($141 trillion for fixed income vs. $115 trillion for equities) the bond market encompasses over 3 million unique securities, compared to only around 9,000 securities for equity investors to choose from.

Bond markets are also characterised by a wide range of debt issuances, differing in maturity and quality. They are full of structural inefficiencies, exposing investors to interest rate risk, credit risk, liquidity risk, and concentration risk, with the biggest weightings in bond indices assigned to the most indebted issuers. Whereas passive fixed income strategies must absorb these inefficiencies, active managers have the freedom to adjust duration as interest rates change, focus on the highest quality issuers to reduce the risk of credit downgrades or defaults, and to diversify holdings to avoid concentrating risk on a small number of issuers.

Similarly, active managers can be selective in the debt issuers they hold, and adjust top-down positioning, including sector rotation and overall portfolio risk positions, based on changing market conditions. To assess the merits of one sector over another and compare opportunities across different markets, active managers typically leverage a research framework that combines fundamental, quantitative and technical analysis. By contrast, passive fixed income ETFs will look to replicate the performance, and risk exposures, of the underlying index, whatever the economic backdrop.

However, even if this passive approach is appealing to some investors, the replication that passive fixed income ETFs provide isn’t exact. As a result, even passive fixed income ETFs have an active component. Holding every security in a benchmark can be complex and expensive, so passive ETFs often use sampling to invest in a subset of securities from an index that will effectively mimic the index’s performance. This strategic index optimisation means that the three largest passive core fixed income ETFs only hold an average of 83% of the holdings of the underlying index that they track (source: From Evolution to Revolution: The Power of Active Fixed Income ETFs“, J.P. Morgan Asset Management, December 2024).

Also, the bond indices themselves will often exclude large parts of the markets that they cover. The Bloomberg US Aggregate Bond Index, for example, excludes some 48% of the $58 trillion US bond market according to our analysis, which means passive investors will only have exposure to a subset of the US Treasury, US investment grade corporate bond, US agency mortgage-backed security (MBS), and US asset backed security (ABS) markets. Passive US Aggregate Bond ETFs also have no ability to gain exposure to the return and diversification opportunities that can be found in the rest of the US bond market, including high yield corporate bonds, leveraged loans or non-agency MBS (although investors should note that accessing these areas of the market can introduce more risk relative to the Aggregate index).

Finally, the advantages of active fixed income management are clearly visible in the performance figures. Taking a look at core fixed income strategies, which are benchmarked to the Global Aggregate Bond Index, we can see that active managers have outperformed their passive peers over trailing three-, five- and 10-year periods (past performance should not be taken as an indicator of current or future returns). 

Invest with the home of active ETFs

At J.P. Morgan Asset Management, we recognise the advantages that active management can bring to global bond markets. We have helped to shape the active fixed income ETF landscape and are currently the largest issuer of active fixed income ETFs globally, with over $65 billion in assets under management.

In Europe, we offer a range of 16 active UCITS fixed income ETFs covering the full spectrum of global bond markets. We continue to expand our offering to meet investor needs, recently launching innovative active strategies providing access to the global and euro aggregate bond markets, the EUR government bond market, the euro and US dollar high yield market, and local currency emerging markets debt.