Advisors Shift to Active Multi-Sector Bond Strategies

Financial advisers are increasingly favoring active multi‑sector bond strategies over funds that track the Bloomberg U.S. Aggregate Bond Index, citing gaps in the benchmark, heavy allocations to Treasuries and mortgage‑backed securities, and recent performance differences.

Advisers and asset managers point to several structural limits in the U.S. Aggregate. The index has not added new market sectors in roughly 40 years, accepts only bonds rated by the major credit agencies, excludes floating‑rate debt and is concentrated in U.S. Treasuries, agency mortgage‑backed securities and investment‑grade corporate bonds. These features tend to expose portfolios primarily to interest‑rate risk rather than changes in credit spreads.

Active multi‑sector managers say their products can allocate across a wider range of credit and rate exposures. Strategies often mix core investment‑grade holdings with higher‑yielding corporate debt, securitized products and floating‑rate instruments. Managers describe those mixes as designed to provide more balanced income sources and to address both credit and interest‑rate risk.

Janus Henderson described the U.S. Aggregate as “heavily skewed toward interest rate risk, with little exposure to credit spread risk.” The firm highlighted performance data showing the multi‑sector bond category outpaced the U.S. Aggregate by more than three percentage points annualized over the past five years while recording lower volatility, according to its analysis.

Passive aggregate ETFs and mutual funds typically carry low expense ratios and hold thousands of individual bonds. Their construction is rules‑based and market‑value weighted, so weights reflect issuance size and index eligibility rather than current credit conditions or interest‑rate views. Market participants say that design can leave investors with large stakes in the most issued sectors and limit the ability to shift exposure quickly when market conditions change.

Some advisers are adopting a core‑plus approach that keeps a low‑cost aggregate sleeve for broad exposure while adding an active multi‑sector sleeve to pursue opportunities outside the benchmark and to manage different types of fixed‑income risk. Demand for floating‑rate instruments and non‑benchmark credit exposures has risen alongside that shift.

The trend reflects advisers’ efforts to structure income portions of client portfolios with a mix of benchmarked exposure and active management. Firms offering multi‑sector strategies point to diversification across credit types and maturities as their rationale for the allocations, and several advisers report increasing client interest in those options.