Active Bond ETF Assets Surge Amid Market Volatility

Editor's note: This is the third in a series of articles running all week on fixed-income ETFs.

Active fixed-income ETF assets have exploded in 2025, capturing nearly half of all fixed-income ETF flows as investors seek professional management amid persistent market uncertainty.

As interest rates remain volatile and forecasters consistently miss the mark on economic projections, investors are turning to active fixed-income ETFs that offer the benefits of professional management with the operational efficiencies of the ETF structure.

"I have never, over in my entire career, seen a multi-year stretch where everybody, including the Federal Reserve and market forecasters, were getting growth, inflation and interest rates wrong," said Jason Bloom, head of fixed income strategy at Invesco. "People don't even have the illusion that they have visibility as to what they think the bond market is going to do."

This uncertainty is helping push assets in active ETFs higher. They had $900 billion in assets globally in June 2024, according to BlackRock data. BlackRock projected last year that active ETF AUM would quadruple to $4 trillion in 2030. 

Human Intervention Provides Comfort

While active ETFs still represent just a fraction of the broader active fixed-income universe, which remains dominated by mutual funds, their rapid growth highlights changing investor preferences.

"Active strategies are actually highly systematic, but they leave room for human intervention when circumstances require," Bloom explained. "This environment is how people take comfort in it."

The appeal extends beyond just performance. According to Dhruv Nagrath, director of fixed-income strategy at BlackRock, active fixed-income ETFs are seeing accelerated growth due to their flexibility.

"It's not that active fixed-income ETFs are taking away flows from index fixed-income ETFs, but it's more that you've just now opened a new stream of flows to fixed income by way of active ETFs," Nagrath explained.

BlackRock's analysis shows active strategies can be particularly advantageous in fixed income. Nagrath's team has been advising investors about risks in longer-duration government debt, especially given concerns about the U.S. fiscal deficit picture that persist "across both administrations."

Different Investors, Different Approaches

Different investor types are embracing active fixed-income ETFs for varied reasons. Bloom noted a clear division in how these products are used: Sophisticated institutions typically use passive ETFs as "precision tools to implement their own outlook," while growth in active ETFs is primarily driven by "the advisor community that is managing money for retail investors."

"Where I see the explosion on the active ETF side is in the advisor community that is managing money for retail investors," Bloom added. "They don't want to be making the call on whether to add duration or take duration off. They want to hire someone to do that for their clients."

The ETF structure itself offers compelling advantages over mutual funds. As Bloom explained, ETFs provide "tax efficiency and transparency" along with "the ability to execute intraday rather than getting end-of-day pricing." For advisors running model portfolios, these features make portfolio rebalancing and management more efficient.

Both Invesco and BlackRock have been at the forefront of active fixed-income ETF innovation. The Invesco Ultra Short Duration ETF (GSY) and core-plus strategy Invesco Total Return Bond ETF (GTO) have eight-year track records, while BlackRock's iShares Flexible Income Active ETF (BINC) has gathered over $9 billion in assets in just two years.

Note: Corrects fourth paragraph to say BlackRock projected $4 trillion in active ETF AUM by 2030.