Issuance has surged in actively managed high yield bond ETFs as established mutual fund managers enter the ETF space. As these products continue to build their track records under experienced managers, we expect investor awareness to grow and subsequently flows to follow. In this paper, we explore the forces reshaping the composition of managed high yield assets across mutual funds and ETFs, and the strategic advantages that active management offers in navigating this market’s credit risk and complexity.

High yield ETFs were born passive, but they’re growing up active

Currently, mutual funds dominate high yield bond assets, with holdings roughly three times the size of ETFs. Also, every asset in this segment is actively managed, underscoring traditional investor preferences for hands-on portfolio management. By contrast, approximately 90% of high yield assets in ETFs are in passive strategies.

However, the appetite for actively managed high yield ETFs is accelerating. Of the roughly 84 high yield ETFs available today, active strategies now account for about 46%, up from just 25% at the end of 2020. Recent product launches illustrate the trend: Over the past three years, 27 new high yield ETFs have come to market, and 78% of them are active. Notably, many of these new ETFs have been issued by established mutual fund managers looking to expand into the ETF space because of the benefits of the ETF structure.

Active ETFs offer strategic advantages in high yield

Flows in 2025 show the growing usage and acceptance of accessing the high yield bond market through ETFs. Year to date, flows into these ETFs are more than 22x higher compared to mutual funds. While much of this activity still leans toward passive strategies, we believe that reflects an awareness gap. Following are some common questions we get from investors about accessing high yield bonds through active ETFs, and our answers on why we believe it can be a winning strategy.

Why is active management so crucial for maximizing returns within high yield?

The high yield bond market is opportunity-rich, but these bonds have significant return dispersion year in and year out. For example, while CCC bonds can provide double-digit returns, they also default at a much higher rate than BB and single-B bonds. Passive products, by design, own the entire market, including all defaults. In contrast, skilled active managers can avoid many of the market’s defaults, often resulting in fewer losses than passive strategies. Moreover, when defaults do occur, active managers have the flexibility to hold and potentially restructure their investments, sometimes achieving higher recovery values through post-reorganization equity, returns that passive investors typically miss.

Are there limitations to passive high yield products that investors should be aware of?

Yes, passive products have some notable limitations. For example, high yield indices, and therefore passive ETFs, exclude securities with less than one year to maturity. While many high yield bonds are called before maturity, the recent reset in interest rates has led issuers to leave bonds outstanding longer, especially when the coupon payments are favorable. Additionally, riskier issuers can leave bonds outstanding until maturity as they explore liquidity options, which is risky but can lead to significant returns.

For example, a DISH corporate bond that matured in November 2024 delivered a notably stronger performance than the high yield index over that same period. 

Does active management offer better downside protection in high yield?

High yield warrants a strategic allocation; in fact, according to J.P. Morgan Asset Management’s Long-Term Capital Market Assumptions, high yield sits closest to the classic 60/40 allocation on the efficient frontier. Historically, high yield has rarely posted negative annual returns, only four times in the past 20 years, which some investors may find surprising. However, during these periods of economic uncertainty, active management has proved its worth. Importantly, the average active manager outperformed the index by an average of 170 basis points during those years, which spanned multiple periods of market stress, including the Global Financial Crisis.

Getting active: High yield is evolving – investors should too

The intersection of active management and the ETF structure is reshaping how investors can access and benefit from the high yield bond market. The efficiency and liquidity of ETFs, combined with the expertise of seasoned managers, are driving a new wave of actively managed products that offer flexibility and strategic edge. Active management can be a difference maker, not only for generating alpha and managing defaults, but also for providing downside protection and unlocking greater long-term value for investors.