THESE ETFs ARE ONE-STOP SHOPS

Multisector bond funds can pick and choose among a wide array of assets.

- DAVID MILSTEAD

BOND investors can be forgiven for feeling a little intimidated these days. This year’s disconcerting volatility is enough to give anyone pause. Plus, investors must sort through a vast array of choices that go well beyond U.S. Treasuries—such as emerging-markets debt, mortgage securities and bank loans to companies, to name a few. Making the right choices among all these types of assets is difficult, let alone finding bond funds to suit your needs.

One solution may be actively managed, multisector bond exchange-traded funds, which offer a kind of one-stop shop for investing in debt. Unlike passive funds that follow a bond index, these ETFs are run by managers who pick and choose among a wide range of assets, some of which have previously been available only to big institutional investors. The funds have “democratized a lot of categories that were hard for individual investors to access,” says Aniket Ullal, the head of ETF research and analytics at CFRA.

To be clear, multisector bond mutual funds have been around for decades. But the ETF versions of the strategy are relatively new, with nearly half of the ETFs included in Morningstar’s multisector bond category trading only since the beginning of 2024. But that doesn’t mean they have no track records to review. Some companies converted their multisector bond mutual funds into ETFs, bringing along their return history. And many of the new ETFs have the same managers and strategies the companies have used for years in mutual funds.

So far, investors seem to like what they see. In 2024, these ETFs pulled in almost $13 billion in assets, up from just $3 billion the year before. That made multisector bond ETFs one of the fastest-growing ETF categories of the year.