Leverage Thornburg’s Active Strategies in This Rate-Cutting Cycle

Rate cuts don’t just change the yield backdrop; they also change the trade-offs inside a bond portfolio. When policy shifts from tightening to easing, duration, curve exposure, and credit selection can matter more than headline income alone. That is where active fixed income ETFs can be useful: they allow managers to adjust exposures without forcing investors to rebuild the portfolio from scratch.

The main advantage is not prediction, but responsiveness. In a changing rate environment, a portfolio can be tilted toward higher-quality issuers, shorter or longer interest-rate sensitivity, or sectors that look more attractive relative to the rest of the bond market. That flexibility may help reduce the risk of being locked into a static index mix that no longer fits the macro backdrop.

Investors should also look beyond the word “active” and inspect what the fund actually owns. Two active bond ETFs can behave very differently depending on their credit limits, sector diversification, and use of spread risk versus interest-rate risk. For long-term allocators, the key question is whether the fund complements existing core bond exposure or simply adds another layer of similar risks.

It is also worth remembering that active management is a structure, not a guarantee. Fees, trading costs, and portfolio turnover still matter, especially in fixed income where small differences can compound over time. The practical benefit comes when the strategy is disciplined, transparent, and aligned with the investor’s role for bonds: income, ballast, or both.

Given how uncharacteristically telegraphic the Federal Reserve has been with interest rate policy decisions as of late, it didn’t surprise the markets that it cut the federal funds rate by 25 basis points for a second time in 2025. What may come as a surprise, particularly to fixed income investors, is that their portfolios may not be properly positioned as the rate-cutting cycle resumes. They can be if they leverage active management. No crystal ball can confirm further rate cuts will happen with 100% certainty. But the CME Group is forecasting more than a 60% chance that one more rate cut will happen before 2025 turns into 2026. Furthermore, additional cuts are to be expected in the new year. That’s prompting investors to ponder if their fixed income portfolios are primed for more monetary easing. They don’t have to worry about any of that with active management.

Why Active Management?

Given the uncertainty, rate cuts can induce a level of angst. One way to quell the anxiety is active management. ETFs already provide an investment vehicle for easy ingress into the bond market for their cost-effectiveness, transparency, and tax efficiency. Active ETFs provide an additional advantage with their flexibility in uncertain markets. This bodes well irrespective of whether the Fed is cutting, raising, or keeping rates steady.
Adept portfolio managers can adjust the holdings of an ETF to attain the fund’s objectives. They can position the fund accordingly to capture upside in a certain corner of the bond market or mitigate downside risk. This is important, as bond markets can be complex and nuanced. Furthermore, if the fund is particularly focused on maximizing yield, this will allow portfolio managers the freedom to seek opportunities that can maximize income. Passive funds tethered to an index can often leads to fund allocations based on market value weight. This could lead to overexposure to only the largest issuers. In contrast, active managers can adjust holdings as market conditions change, which again, speaks to their flexibility.

2 Ways to Leverage Active Management

Given the aforementioned benefits, two funds fixed income investors should consider are the Thornburg Core Plus Bond ETF (TPLS) and the Thornburg Multi Sector Bond ETF (TMB). Both provide investors with added income potential as well as active management, making them all-weather fixed income solutions that can thrive in a rate-cutting environment. During a recent VettaFi Q3 Fixed Income Symposium, Thornburg’s Head of Fixed Income and Managing Director Christian Hoffmann joined TMX VettaFi’s Head of Research Todd Rosenbluth to discuss how active ETFs can adjust to this new macro environment of lower rates. Watch the webinar to delve deeper into why active management exposure is imperative today.

https://www.etftrends.com/portfolio-strategies-content-hub/leverage-thornburgs-active-strategies-rate-cutting-cycle/

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