In a recent discussion at the Q1 2025 Fixed Income Symposium on the VettaFi platform, Alex Mackey, CFA, co-CIO of fixed income at MFS Investment Management, highlighted the firm's new suite of actively managed ETFs. Launched at the end of 2024, these ETFs include three equity and two bond funds. Mackey delved into the strategies behind the MFS Active Core Plus Bond ETF (MFSB) and the MFS Active Intermediate Muni Bond ETF (MFSM), emphasizing their alignment with traditional mutual fund processes but with unique positioning in the bond market.
Exploring the New ETF Strategies
In the vibrant autumn of finance, MFS has introduced its innovative ETFs designed to navigate the complexities of the bond market. The MFS Active Core Plus Bond ETF (MFSB) positions itself strategically between existing funds like the MFS Total Return Bond Fund and the MFS Income Fund. This ETF invests across various sectors and bond categories, including investment-grade corporates, high-yield, and municipal bonds. Additionally, it may venture into securitized and asset-backed securities. According to Mackey, MFSB operates at the lower end of risk tolerance while maintaining a spread advantage and seeking coupon or credit carry opportunities due to the robust economic fundamentals.
The management team employs bottom-up analysis and quantitative screens to select securities, ensuring a diversified portfolio primarily composed of quality, investment-grade bonds. While some allocations are made to below-investment-grade securities, the fund aims to invest broadly across industries, offering a balanced exposure with an expense ratio of 0.34%.
Meanwhile, the MFS Active Intermediate Muni Bond ETF (MFSM) leverages MFS’s extensive experience in municipal bonds spanning nearly five decades. The fund benefits from the insights of the firm’s muni and global fixed income teams, focusing on BBB-rated credits within the municipal domain to generate alpha. Despite higher risks, the current constructive fundamentals for munis make this strategy promising. MFSM invests mainly in investment-grade bonds with an average maturity of three to ten years, potentially concentrating in specific projects and states. The fund also carries an expense ratio of 0.34%, aligning with its active management approach.
From a reader's perspective, the introduction of these ETFs underscores the evolving landscape of active bond investing. MFS's commitment to leveraging both macroeconomic trends and detailed security analysis sets a new benchmark for generating alpha in the bond market. As investors seek opportunities amidst ongoing recovery trends, these ETFs offer a compelling blend of diversification and strategic positioning. This innovation challenges traditional investment paradigms and invites deeper exploration into the potential of actively managed bond funds.
