Rising demand for active fixed income ETFs in the bond market

The growth in demand for fixed income ETFs has been one of the most notable investment trends of the last two decades. Today, fixed income ETFs are an important tool for many investors looking to access an increasingly complex bond market environment.

There are several compelling reasons behind the rise of fixed income ETFs, including their ability to offer investors high levels of liquidity and transparency, and efficient execution and fees. Ultimately, the ETF vehicle offers investors an efficient way to gain exposure to underlying fixed income markets:

• Liquidity: ETFs trade on an exchange, giving investors the ability to buy and sell throughout the day;
• Transparency: Intra-day trading provides the opportunity for real-time price discovery, allowing investors to see how their portfolio risk profiles may be evolving over time.
• Execution and fees: The ability of ETFs to trade on secondary markets reduces primary market transactions, helping to reduce portfolio turnover and transaction costs.

However, while there are clear reasons why fixed income ETFs are an appealing option for investors, demand is increasingly being directed towards actively managed fixed income ETFs in particular, with active bond strategies receiving about a third of all flows into fixed income ETFs last year, up from just 16% in 2023¹. We don’t expect it slow either. By 2030 we forecast the global fixed income ETF market to grow to $6 trillion and the active fixed income ETF market to grow to $1.7 trillion.

The advantages of active fixed income strategies

While passive ETFs can provide core fixed income exposure—such as to a diversified bond index—at minimal cost, they may leave portfolios vulnerable to the changing investment characteristics of fixed income indices and shifts in market behaviour. By contrast, active fixed income ETFs have the opportunity to benefit from these changing market dynamics.

For example, because the composition of bond indices is driven by the largest issuers, not necessarily the most successful issuers, a passive ETF will automatically drift towards the largest issuers over time irrespective of balance sheet quality. An actively managed fixed income ETF, on the other hand, can allocate towards higher-quality issuers and away from those that could be at risk for downgrades, which can help preserve capital and returns in times of economic or market stress.

Active fixed income ETFs can also capitalise on numerous factors that impact bond prices and move markets, including economic and market cycles, central bank actions and regulations for institutional investors. For instance, in the current market environment where the Bank of Japan is looking to raise rates even as other developed are on an easing path, active managers could potentially take advantage by diverting capital away from front-end Japanese government bonds towards regions where central bank policy is more supportive for returns.

Active managers can also look to combine sectors with low correlations to drive outperformance while reducing the volatility of returns.

Active managers outperform with Fixed Income in core allocations

Over the trailing 3-, 5-, and 10-year periods, active global bond managers have delivered average annualized netof-fee returns that exceed those of the Bloomberg Global Aggregate Index. However, selecting the right manager is crucial due to the wide dispersion in returns between top and bottom performers. According to Morningstar data, 81% of JP Morgan’s fixed income mutual funds and ETFs have ranked in the 1st or 2nd quartiles over the past 5 years. The flagship J.P Morgan Aggregate Bond Fund has consistently remained in the top two quartiles over 3, 5, and 10 year periods. Our strong track record in active management is a result of our deeply resourced global investment team. With on-the-ground expertise around the world, we ensure no investment opportunity is overlooked. While past performance is not indicative of future results, choosing managers with well-established research philosophies, processes, and experience across market cycles can increase the likelihood of positive outcomes. 

Leveraging active aggregate bond ETFs for core allocations 

Core fixed income strategies are particularly well suited to active ETFs. Take, for example, the most widely used global diversified core fixed income index—the Bloomberg Global Aggregate Index. This index has a wide opportunity set for active managers to capitalise on, including over 30,000 securities spanning government, corporate, government-related, emerging market and securitised bonds across 25+ local currency markets. The equivalent index for eurozone focused investors, the Bloomberg Euro Aggregate index, consists of a broad range of euro-denominated bonds across government, corporate, government-related, and securitised sectors. 

The size and complexity of the aggregate bond universe provides significant opportunities for active managers to generate alpha via bottom-up security selection and topdown sector allocations, and to take advantage of relative value opportunities by rotating between sectors. 

Moreover, while passive ETF strategies are limited to replicating index exposures, active managers can explore a plethora of options that are not part of the index to enhance risk-adjusted returns, such as high yield and collateralised loan obligations (CLOs).

Introducing JAGG and JEGG: Active advantage in aggregate bond ETFs

JPM Global Aggregate Bond Active UCITS ETF (JAGG) and JPM Euro Aggregate Bond Active UCITS ETF (JEGG) are designed to offer investors the best of both worlds—the transparency and cost efficiency inherent in the ETF vehicle, combined with a time-tested active investment process backed by a globally-integrated and research-driven approach.

Launched in October 2023, JAGG was the first active ETF in the global bond category. Since launch in October 2023, JAGG has outperformed the index by 0.57% (gross of fees, cumulative) returning 5.44% vs. benchmark returns of 4.84% (as of 31 December 2024).* This outperformance has been driven by active management of interest rate, spread sector and currency-exposures, based on our research-driven process.

JEGG was launched in January 2025 to provide investors with efficient access to a diversified European core fixed income portfolio, while tapping into the full resources of J.P. Morgan’s fixed income platform and an investment process that has driven consistent outperformance. Both ETFs are managed using the same time-tested investment process that we use to manage our Global Aggregate Bond strategy, which has delivered strong returns since its inception in 2009 while retaining the key features of a core bond portfolio, including low volatility, limited drawdowns and no market bias.

¹ Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.