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Notably, indexing giant Vanguard, which manages some $ 12 trillion globally, launched at least four active bond funds last year in response to advisor demand, ramping up its push to boost the $ 1.2 trillion it now devotes to active fixed-income assets.
Many active bond managers expect to continue their winning ways in 2026, amid a sound economy and the Fed’ s continued dovish stance. Noting the fluctuations in the bond market The New York Times said a“ once sleepy haven for risk-averse investors” had turned into a“ thrill ride.”
Capital Group, a firm known primarily as an active manager that oversees $ 3.2 trillion in global assets, recently said in its outlook for 2026 that the environment favors“ nimble” investors— in other words, active bond pickers.“ The bond market is riding into 2026 on powerful tailwinds: a resilient economy, strong investments in AI and rate cuts from the Federal Reserve,” wrote a Capital Group portfolio management team in December.“ Yields that remain elevated relative to levels seen in the decade following the global financial crisis also point to solid return potential.”
Active Managers’ Built-In Advantage
Bonds, the conventional wisdom goes, are boring, and the 40 % side of the traditional 60 / 40 portfolio construction can be a frustratingly hard-to-understand asset class for many investors— and even some managers. The fixed-income universe is indeed, as Guggenheim Investments puts it,“ sprawling, diverse, and huge.” The Agg contains more than 25 times the number of securities as the S & P 500.
This universe gives active managers a large playing field filled with opportunities.
“ It’ s mathematically easier” for active bond managers to beat their index than active equity managers, says Craig Manchuck, portfolio manager for the Osterweis strategic income strategy. On the other hand, in“ the equity world, if the top five names in the index are producing better than 50 % of the returns and you don’ t have all of those top five names in [ your portfolio ], then you really run the risk of underperforming. So you’ ve got to pick
Overall, the bond market is large, complex, illiquid and inefficient, making it easier for active managers to add alpha against their category indexes than it is for managers of equities.
the 1 % of the S & P 500 that are the winners to have a chance at outperforming.”
Fixed-income managers, by comparison— having a much wider field of opportunities with significantly less concentration— don’ t have to pick the top 1 % or even the top 10 %.“ What you really need to do is you need to eliminate the bottom 10 %,” Manchuck says.“ That’ s how you outperform in fixed income— by eliminating the losers.”
Indeed, according to Morningstar analyst Maciej Kowara, active managers get a yield advantage over the Agg by doing a couple of things: One is by underweighting Treasurys( these bonds grew from 35 % of the Agg’ s value in 2014 to 44 % in 2024, according to Fidelity). The other is by overweighting asset-backed securities and“ BBB”-rated corporate bonds or selective out-of-benchmark high-yield bonds.
Kowara, a principal of fixed-income strategies at the data firm, noted that a winning actively managed portfolio can be rather simple. A hypothetical portfolio with allocations of 10 % to asset-backed securities, 4 % to high-yield bonds, and 1 % to leveraged loans— alongside an 85 % allocation to the Aggregate index— would have outperformed the benchmark in 78 % of the rolling five-year periods from 2002 to 2025, with improved volatility-adjusted returns.
Playing Defense In 2026
Active managers are supposed to generally perform better than their passive peers during downturns. Yet they struggled last April amid the turmoil over Donald Trump’ s announced tariff plan.
Active bond managers tend to take more credit risks than their indexed peers, and they struggled to navigate the market swoon amid fears of a global economic downturn. The credit spreads between safe Treasurys and corporate bonds widened, and investors pulled some $ 60 billion from bond mutual funds, including many active offerings.
Still, the fixed-income and equity markets both recovered quickly, and now bonds are heading into the new year with as many tailwinds as headwinds.
Many bond strategists think that these securities could be buoyed by a resilient economy, tamer inflation and lower interest rates. But there are geopolitical warning signals making observers nervous, including the U. S. strike on Venezuela in early January as well as the DOJ’ s criminal investigation of Fed Chairman Jerome Powell, a seeming attack on the central bank’ s independence.
As a result, some portfolio managers are playing defense heading into the new year. One of those is Sam Martinez, a senior client portfolio manager at Vanguard, who says he’ s mostly betting on high-quality investment-grade securities, notably corporate debt, and seeking a neutral duration on interest rates, a nod to the possibility of volatility in the rate space.
“ With credit spreads as tight as they are now( meaning the extra yield investors can earn on corporate bonds compared to riskfree government debt is small), I can tell you that we have an up-in-quality bias,” Martinez says. Specifically, he’ s favoring investment-grade banks and utilities.
Some investors, like Graff at Facet, scoff at paying the higher cost generally required of actively managed strategies, which come with higher expense ratios. Investors pay an average fee of 0.41 % for an active bond fund, according to Morningstar Direct, compared with 0.07 % for passively managed bond offerings. In fact, he doesn’ t use active bond managers at all now, instead relying on broad ETFs that overweight corporates.
“ I’ m doing the thing that the active managers do in order to outperform,” Graff says,“ but I’ m doing it in a vehicle that allows me to pay extremely low fees.”
JANUARY / FEBRUARY 2026 | FINANCIAL ADVISOR MAGAZINE | 39