Ask the Manager: Stepping out of Cash with Inflation and Short-Duration ETFs

We maintain a constructive view across most credit asset classes. Corporates are delivering solid performance and preserving margins, which supports further tightening of credit spreads. Excess returns are positive in both investment grade and high yield. In investment grade, outright yields look attractive as central banks continue to ease and fundamentals sustain healthy investor demand, while high yield offers a steady income stream but carries valuation risk and could react negatively to surprising data or policy developments.

Shorter-dated inflation-linked bonds have also continued to perform well. The Fed is facing the potential of slower growth and a period of elevated inflation, with US inflation near 3%. We expect inflation to persist into 2026, which could limit the Fed’s ability to hit both mandates. This situation should mean that real yields remain attractive as the Fed reacts to slower growth. In the UK, real yields remain elevated, though volatility could rise if the budget surprises markets.

Emerging markets have also performed well despite ongoing global trading-system uncertainties and China’s softness, drawing significant inflows. Inflation is generally lower, which allows for rate cuts that benefit local bond markets.

Can you describe the unique active management approach AXA IM applies in your two recently launched fixed-income ETFs offering exposure to Global Inflation and Global Corporate Short Duration? Specifically, how do you leverage fundamental research, quantitative analysis, and risk management to deliver differentiated outcomes compared to passive or other active fixed income strategies? 

Significant inflows into actively managed fixed-income ETFs, we believe, signal a structural shift as investors seek the flexibility of fixed-income mutual funds with ETF efficiency—liquidity, transparency, diversification, and accessibility—over pure passive exposure.

All our active ETFs are integrated with fundamental management teams. Drawing on AXA IM’s three decades of recognised expertise in fixed-income investing and active portfolio management (portfolio managers, credit analysts, trading platform, macro research), we identify relative-value opportunities across markets and generate value through strategic reallocations, accessing opportunities beyond passive strategies.

We are once again taking a bold, innovative step with the launch of the first actively managed Global Inflation-Linked and Global Corporate Short-Duration Bond strategies in the UCITS market. We are committed to differentiating our ETF range from peers and offering highly competitive pricing for our strategies—just a few basis points above passive options and significantly cheaper than mutual funds.

Employing a Buy-and-Maintain approach to generate income and blend value in a Global Corporate Short-Duration Bonds strategy is a distinctive stance in the UCITS market. The goal of Buy-and-Maintain investing is to capture credit returns over a full market cycle, aiming to outperform the credit universe with limited downside risk. Such an approach also targets low active turnover, aiming for around 15–20% per year on average. This means it favours natural turnover to adjust and reposition the portfolio while preserving its core characteristics.

Conversely, the Global Inflation-Linked Bonds strategy leverages the same proven process as our mutual funds. Depending on market conditions and the inflation outlook, we manage positioning along the inflation-linked yield curve, interest-rate sensitivity, and regional exposure. This strategy focuses on a maturity exposure of 1-10 years.