Ask the Manager: Why Being Active Matters in Fixed Income ETFs

In this edition of Ask the Manager, Olivier Paquier, Global Head of ETF Sales at AXA Investment Managers, shares his insights on why active management is gaining traction in the fixed income ETF space. Against a backdrop of rising rates, inflation, and growing demand for ESG integration, Paquier explains how active strategies offer the flexibility and precision needed to navigate today’s complex bond markets.

Why is active management becoming more relevant in fixed income investing? Is this a structural shift away from passive bond investing, especially in the current macroeconomic environment?

The rise in interest rates and inflation has created a complex environment for fixed income investing. Active management allows for strategic adjustments that are crucial for managing risks effectively.

Active fixed income ETFs enable the identification of mispriced securities, particularly in specialized segments like Euro Credit PAB, which focuses on sustainable corporate bonds. This capability attracts investors seeking responsible investment options.

Active management facilitates thorough credit analysis, allowing for better assessment of issuer fundamentals and proactive adjustments to credit exposure, which is essential in a volatile market.

The significant inflows into actively managed fixed income ETFs indicate a structural shift towards this approach. Investors are increasingly looking for the flexibility to respond to market changes rather than relying solely on passive exposures.

How does active management help investors navigate market volatility, interest rate uncertainty, and credit risk compared to passive exposures? Can you explain how ETF liquidity is ensured, particularly in less liquid markets?

Active fixed income ETFs continuously assess liquidity by examining trading volumes and market participant activity. This ensures favorable trading conditions, particularly in less liquid markets like municipal bonds.

Collaborating with market makers is key to maintaining liquidity. This relationship helps ensure tighter bid/ask spreads and allows for efficient trade execution in less liquid securities.

By maintaining a diverse range of holdings, typically around 300-400 securities, active fixed income ETFs reduce concentration risk and enhance liquidity, allowing for smoother responses to market shocks.

The ability to adjust holdings based on real-time liquidity assessments allows active ETFs to navigate less liquid markets effectively and select bonds with higher liquidity.

How do active bond managers adjust duration, credit exposure, and sector positioning to enhance returns and mitigate risks? Which fixed income sectors offer the most value for active management?

Active fixed income ETFs adjust duration based on interest rate forecasts to protect capital from rising rates while capturing higher yields in declining rate environments.

Conducting detailed credit assessments allows for targeted investments in high-quality bonds, enhancing returns while managing the risks associated with credit quality.

Active ETFs allow for rotation into sectors such as Euro Credit PAB, which focuses on sustainable investments, providing significant return potential while aligning with environmental goals.

The US High Yield sector offers considerable value for active management due to its potential for higher returns. Active ETFs can identify undervalued securities, navigating market complexities to enhance performance.

How is active management adapting to the rise of ESG-focused fixed income investing? Can it generate excess returns while adhering to sustainability criteria?

Active fixed income ETFs are increasingly integrating ESG criteria into their investment processes, facilitating the selection of securities that align with sustainability principles while aiming for competitive returns.

Developing thematic strategies within active fixed income ETFs allows for targeted investments in specific sustainability issues, such as clean energy, enhancing both financial and social returns.

Bonds from companies with strong ESG practices often exhibit lower risk profiles, which can lead to superior long-term performance. This focus enhances the potential for generating excess returns.

Adapting to evolving ESG regulations ensures that active fixed income strategies remain compliant while pursuing attractive investment opportunities. This responsiveness positions these ETFs favorably in the growing sustainable investment landscape.

About Olivier Paquier

Olivier Paquier is Global Head of ETF Sales at AXA IM. Prior to joining AXA IM, Olivier led JP Morgan Asset Management’s ETF Distribution team for continental Europe before being appointed Head of EMEA Distribution for ETFs. Before that, Olivier was in charge of SPDR ETF distribution in France, Monaco, Spain and Portugal at State Street, covering all client types whether institutional or intermediaries. He also led the distribution team in France for State Street Global Advisors, covering active and passive strategies. Olivier started his career in 2007 at NYSE Euronext as a Product Manager working on ETFs, warrants and certificates. He joined Amundi in 2008 as Product Specialist on ETFs.

Olivier holds a Master’s degree from the Sorbonne University (Paris) and an MBA from the Paris School of Business.

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