Why now for active fixed income ETFs

Yields in corporate debt markets have continued to rise, bringing the asset class back into focus for investors. Amid global economic and geopolitical tensions, Fidelity International's active Fixed Income ETF team examines why investors are reassessing corporate credit as a source of income, diversification and relative resilience within portfolios.

Key points

• With yields continuing to rise, investment grade credit offers attractive income, stability and diversification potential to balanced portfolios.
• Heightened dispersion and tight credit spreads increase the importance of security selection. An active approach to the market can be used to take advantage of the opportunities afforded by market dispersion and volatility while optimising risk exposures.
• Active fixed income ETFs combine the benefits of an ETF wrapper with systematic, research-led alpha seeking, offering investors transparent, cost-efficient access to active strategies.

Corporate bonds return to the fore

Against a backdrop of heightened macroeconomic uncertainty and persistent geopolitical risk, investors are re-evaluating how they access core markets. Fixed income is returning to prominence as higher starting yields restore its appeal, while the limitations of purely passive exposure are becoming more apparent. In response, investors are increasingly favouring active, research-backed approaches that retain the familiar risk profile of investment grade credit, yet allow for more selective positioning within the benchmark universe.

While fixed income as a whole is regaining ground in allocations, investment grade corporate bonds have seen more attractive yield pickups compared to government bonds in recent months. While government debt as a percentage of GDP has soared since 2008, non-financial corporate debt has not materially increased. Despite significantly higher indebtedness, government bonds have not provided proportionate yield compensation for investors. As a result, investment grade corporate debt offers a comparatively attractive yield pick-up compared to government debt.

Public and private sector indebtedness versus yield ( debt to GDP and respective yields )

Source: Fidelity International, Bloomberg, IMF, as of 31 December 2025. US Government Bond Yield refers to respective yield on 10-year government bonds. US Corporate IG Yield refers to yield on yield on Bloomberg US Corporate Bond Index.

Furthermore, investment grade corporate debt offers an attractive avenue of diversification for investor portfolios. Corporate bonds tend to have low or potentially even negative correlations to the corresponding building blocks within equity markets, enhancing their attraction at a time when investors have allocated heavily to equities due to AI-driven exuberance and gains.

Active approaches add value amid turbulence

While investors may seek increased fixed income allocations, credit markets remain large and complex, with thousands of securities and meaningful dispersion in fundamentals and valuations. Relatively tight spreads heighten the importance of security selection, particularly in avoiding overextended bonds where pricing appears stretched relative to underlying credit quality. An active, research-integrated approach is well-suited to this environment, allowing investors to maintain active broad market exposure while differentiating between stronger and weaker opportunities within the index.

In this environment, investors are increasingly incorporating active fixed income ETFs into their bond allocations. Passive index trackers can play a valuable role in providing efficient, low-cost access to broad market beta, but by design they aim to deliver benchmark returns before fees and do not differentiate between issuers within the index. For investors seeking to enhance core allocations or generate incremental returns, passive building blocks alone may therefore be insufficient.

Active fixed income ETFs address this by systematically integrating research insights into security selection within a benchmark-aware risk framework. By maintaining close alignment to benchmark characteristics while allowing for differentiated positioning at the issuer level, these strategies provide investors with flexible, transparent and cost-efficient access to active credit management, at a time when allocations to fixed income are rising in the search for income, diversification and portfolio stability.

Research enables enhanced fixed income access

Corporate Bond Research Enhanced ETFs offer a means for investors to access active, benchmark-aware investment grade credit exposures. They are designed to deliver excess returns through disciplined security selection, rather than relying on macro views or duration positioning, allowing investors to enhance core allocations while maintaining familiar risk characteristics.

Their approach is underpinned by Fidelity International’s global research platform and over 20 years of model-driven investing experience using long-term datasets. They combine proprietary quantitative insight with extensive fundamental and sustainability research, a breadth of expertise that supports consistent security assessment and the determination of stronger and weaker opportunities within the index across market cycles.

Implemented by an experienced systematic fixed income team, this approach has been tried and tested across live portfolios. Delivered through liquid, transparent and cost-efficient ETFs, these strategies provide investors with compelling, cost-effective access to Fidelity International’s research capabilities.

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