Bond exchange-traded funds rarely get the attention they deserve. Until recently, most have tracked indexes. They’re less volatile than stocks and often used to fine-tune a portfolio’s overall risk, so it’s easy to write them off as boring.
A few things have changed over the past several years. Interest rates are higher, so bonds look more attractive than they have in a long time. Asset managers have created a lot of new bond ETFs over the past decade across a wide spectrum of investment processes. Some, like Treasury ETFs, are quite boring but effective at cutting risk. Others are actively managed with a lot of moving parts. Some are riskier than others.
Bonds Are Back
The number of bond ETFs available to investors has steadily increased since 2019. And a lot of investors are taking interest in them. Almost $300 billion flowed into bond funds over the first nine months of 2025, or about 30% of all ETF inflows this year. Bond ETFs are a big component of the ETF ecosystem, and there are no signs of that trend slowing down.
Why so much interest?
One reason is that stock ETFs are heavily picked over. Just about every stock strategy has been attempted at this point: broad market indexes, strategic-beta/risk factors, sustainability and values-based strategies, and thematic ETFs, along with active and passive approaches to many of them. The best stuff is already out there, it’s fairly inexpensive, and it’s difficult to compete with.
Another reason is the yields attached to bond ETFs. Many had historically low yields throughout most of the 2010s, when the Federal Reserve’s short-term interest rate hovered around 0. Yields serve as a rough proxy for a bond ETF’s expected return. So, low yields translated into low returns that couldn’t compete with a persistently appreciating stock market.
Bonds and bond ETFs look a lot more attractive today than they did through much of the 2010s. The Fed’s short-term interest rate now sits at around 4%. That’s much closer to the long-term historical norm, so they now offer a reasonable rate of return.
There’s also a lot of territory to explore in the bond world. Bond ETFs range from ultrasafe short-term Treasuries to high-risk/high-reward multisector ETFs with several moving parts. Some of these ETFs track an index, but active managers guide many more. About two-thirds of the bond ETFs created between January 2019 and October 2025 were actively managed.
There’s a good reason for that. Some categories don’t lend themselves to tracking an index. For example, multisector strategies cover a wide range of approaches, and the managers can employ a broad set of tools to control risk and improve returns. Other categories like bank loans or securitized loans invest in assets that are difficult to trade and their markets tricky to define. Active management, done well, makes a lot of sense for ETFs in such categories.
One way to navigate the growing and increasingly daunting menu of bond ETFs is to start with the four main types of strategies that can serve as portfolio building blocks.
Core and More
Core bond ETFs are among the least risky of the four major bond ETF classifications, and they’re the de-facto starting point for many investors. Index-tracking ETFs are big in the intermediate-core bond Morningstar Category. Vanguard Total Bond Market ETF BND and iShares Core US Aggregate Bond ETF AGG each had well over $100 billion parked in them at the end of October 2025. That makes them the largest bond ETFs by a wide margin, for good reason. They provide access to the investment-grade bond market for an exceptionally low fee, allowing them to be an effective tool for dialing in a portfolio’s overall risk.
If there’s a downside to BND and AGG, it’s that they tend to favor low-risk/low-reward Treasuries. Roughly 45% of the bonds in BND and AGG were US Treasury bonds, which lowers the hurdle that active managers need to overcome. They also skip out on some segments of the bond market. A more comprehensive ETF from the intermediate core-plus bond category, such as iShares Core Universal USD Bond ETF IUSB, adds high-yield bonds, commercial mortgage-backed securities, and bonds from emerging markets. Such allocations distinguish core ETFs from core-plus ETFs; the latter typically hold more high-yield bonds.
The differences between BND (or AGG) and IUSB are small but important. Treasuries, mortgage bonds, and corporate bonds dominate all three ETFs, but IUSB has a marginally broader portfolio that inches closer to representing the entire bond market. That comes with incrementally greater risk and a higher expected return.
Active managers in both the intermediate core bond and intermediate core-plus bond categories go one step further. Simply holding more investment-grade corporate bonds is an easy way to improve yield and total return over Treasury-laden ETFs like BND and AGG. In some instances, active managers can invest in bonds that are off-limits to the indexes tracked by BND, AGG, or IUSB because they’re too small or too complicated to fit neatly into an index’s rules. For those reasons, active managers have some levers to pull to improve upon a broad market, index-tracking ETF. ETF providers are keen to do that, and many of the largest have created their own version of an actively managed core or core-plus bond ETF. To help cut through the noise, some of Morningstar’s perennial favorites are highlighted in Exhibit 2.
Multisector Bond ETFs
Multisector bond ETFs are incrementally riskier than core-plus bond ETFs. Sometimes these ETFs are labeled as “income ETFs” because they tend to focus on income, usually holding higher-yielding bonds. However, their portfolios are typically spread across a range of bond sectors, which makes them more diversified than a dedicated high-yield bond ETF. They also retain their ability to diversify away from stocks.
Multisector ETFs can vary in the way they invest and the risks they incur along the way. By their nature, these ETFs are more active than core and core-plus bond ETFs, so you’re unlikely to find many index-tracking ETFs in the multisector bond category. That means a little more homework is necessary to understand what’s going on under the hood. Two multisector ETFs serve as a good starting point: JPMorgan Income ETF JPIE and Hartford Strategic Income ETF HFSI. Both earn Gold Morningstar Medalist Ratings.
High-Yield Bond ETFs
Dedicated high-yield corporate-bond ETFs are among the riskiest bond ETFs available. Index-tracking funds tend to struggle in this category because high-yield bonds are tougher and more expensive to trade. So, they can run into problems when trying to accurately replicate a high-yield index. Some indexes have tried to use clever rules to get around those problems, but they end up with a narrower pool of bonds that doesn’t always represent the high-yield market.
High-yield bonds warrant some caution. The yields may look enticing, but the underlying bonds are among the riskiest in the bond market. Furthermore, their prices tend to ebb and flow with the stock market, meaning they don’t diversify away stocks’ risks as well as core, core-plus, or multisector bond ETFs.
All signs point toward active management as the better choice in this category. If anything, managers aren’t forced to buy or sell certain bonds, and they can be more selective and opportunistic with the risks they take. Historically, that has worked out well. Almost half of actively managed funds in the high-yield bond category beat the average of their passively managed peers over the 15 years through June 2025.
Morningstar doesn’t yet rate any actively managed high-yield ETFs. The three actively managed high-yield ETFs in Exhibit 4 might be worth keeping an eye on. All are relatively new, but they come from highly regarded asset managers with ample resources.
More choices can be a good thing, but don’t forget the role that bonds play in a portfolio. In most instances, they’re used to manage risk. Done well, they deliver reasonably low volatility and effectively diversify away stock market risk. High yields can be tempting, but those ETFs amp up risk and may ruin a bond ETF’s ability to act as a diversifier.
