Bonds are in an interesting place right now. While last year ended with interest rates
coming down at a healthy clip following multiple cuts, this year the outlook is much
murkier. With that in mind, it may be worth refreshing bond portfolios — including core
allocations. An active ETF could provide just the right boost therein, with a fund like
TOTR providing one notable option to do so.

See more: Looking for ETFs to Limit Volatility? Don’t Ignore Active

The T. Rowe Price Total Return ETF (TOTR) launched in September 2021. The strategy,
which charges a 32 basis point fee, actively invests in a diversified group of fixed
income securities. For example, it can invest in debt offerings ranging from U.S.
government-issued debt to bank loans to asset-backed securities.

Active ETFs for Bond Portfolios

The strategy can add some additional boost to bond portfolios via its exposure to high
yield bonds. Its active managers can invest in bonds of any maturity and invest in high
yield bonds with up to 35% of its assets. What’s more, the strategy can even enhance
returns with some additional mortgage-backed security purchases and sales.

The active ETF’s approach to bond portfolios helped it outpace the US Aggregate Bond Index’s return of 125% by delivering 2.30% in 2024, per T. Rowe Price data. As of February 28, TOTR had provided a 4.98% 30-day SEC standardized yield and a 4.99% yield to maturity.

Those yield metrics speak to the fund’s potential role as a core bond refresher. Where
passive funds may struggle to adapt to a very volatile economic environment, TOTR’s
broad remit and reliance on T. Rowe Price’s research platform can help it adapt as
needed. The active flexibility could perhaps prove critical in such an uncertain rate environment.

Speaking more broadly about active fixed income, the type of passive funds that serve
core fixed income roles frequently struggle to replicate their indexes. That owes to
passive funds failing to adapt to bonds expiring or issuer defaulting. Taken together, an
active ETF like TOTR could prove a fund to watch in an uncertain 2025.