2 Bond ETFs That Can Adjust to Any Fed Rate Decision

The U.S. Federal Reserve’s third and final rate cut of the year may not have caught most of the capital markets off-guard. However, fixed income investors may be wondering how best to position their portfolios with 2026 just around the corner. Rather than ponder on what move to make next, investors can opt for an actively managed strategy.

Regardless if the Fed decides to cut, pause, or unexpectedly raise rates in the new year, actively managed funds like the MFS Active Core Plus Bond ETF (MFSB) and the MFS Active Intermediate Muni Bond ETF (MFSM) can tailor their holdings . Early prognostications show that the Fed will pause on rate cuts in the opening month with an over 70% chance, per the CME Group’s FedWatch indicator. Of course, a rate cut will be predicated on how the Fed assesses economic data from now until the new year.

Again, regardless of what the Fed ultimately decides to do, an actively managed strategy can adjust accordingly. An active strategy provides autonomy to the portfolio managers of MFSB and MFSM to adjust the holdings as necessary to suit current market conditions.

Active Core or Muni Exposure

MFSB offers investors core bond exposure that could serve as an investor’s standalone fixed income allocation in a 60-40 portfolio. Or, it can be used as a complementary active fund to an existing fixed income portfolio that already has indexed fund exposure.

As indicated in the fund’s fact sheet, MFSB will invest in “investment-grade bond strategy that integrates macro, bottom-up, and technical perspectives in an effort to add value through sector and quality allocation, security selection, and also duration/yield curve decisions.” In addition to diversified, core bond exposure, MFSB’s portfolio managers will also look for opportunities that can maximize yield.

For those looking to add muni exposure for its yield, strong credit fundamentals, and tax-free income, MFSB is an ideal fund that’s worthy of consideration. Per the MFSM’s fact sheet, investors get a plethora of muni exposure across various industries, including student loan munis, general obligation bonds for financing local projects, and bonds supporting universities and colleges. This diversification mitigates concentration risk by avoiding only sector-specific bonds. Additionally, the fund mitigates credit risk by investing in mostly investment-grade (rated BBB or higher) munis.

Both funds tap into the MFS portfolio management team who carry years of industry knowledge and expertise. MFSB and MFSM offer cost-effective solutions with expense ratios of just 34 basis points, or $34 per every $10,000 invested.

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