On this episode of the “ETF of the Week” podcast, VettaFi’s head of research, Todd Rosenbluth, discussed the T. Rowe Price QM U.S. Bond ETF (TAGG) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week! 

Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. If you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor, and to get more details on the new, newsworthy, trending, and timely ETFs that we discuss here. 

Todd Rosenbluth, great to chat with you again!

Todd Rosenbluth: It’s great to be back!

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The T. Rowe Price QM U.S. Bond ETF. Ticker T-A-G-G or TAGG.

Chuck Jaffe: TAGG! T-A-G-G, the T. Rowe Price QM U.S. Bond ETF. And if this one sounds familiar, that’s because it is! We don’t do too many repeats, but this was the ETF of the Week — you tagged this one — just over a year ago. So, why is this back, and what has changed in a year that makes you want to revisit it?

Todd Rosenbluth: So, this is a bit of a victory lap. Not because of how well the fund has performed, although we’ll talk about that in a moment. But when you and I were talking about this TAGG ETF from T. Rowe Price, it was relatively small. And in the past year since I looked at it again, it’s gathered $1.2 billion. It now is roughly $1.4 billion. 

So, essentially, we were early to talk about the fund. Investors embraced it, whether they heard this or watched this, or they just were looking for a low-cost, actively managed fixed income ETF in an environment that was going to reward such strategies. I guess your audience can determine, but I’m happy to say this fund is much larger. 

It’s doing what it should do, which is slightly outperforming the Bloomberg Aggregate Bond Index in the past year, and I think since inception as well. For people who are looking for active fixed income, given that the Fed is likely to continue to cut rates, we think TAGG is a good choice.

Chuck Jaffe: You pointed out it is slightly outperforming the index for the last year. It’s basically in the middle of its Morningstar Peer group. I’m curious: Is this story and finding this more about the asset class and what this fund does, or is it more about T. Rowe Price — a serious player in traditional mutual funds — that is now becoming a serious player in ETFs? 

We’ve talked about some other T. Rowe Price ETFs, and the company, clearly, it’s not that it’s turning away from the fund business, but it is making a much more concerted effort to make a splash in the ETF business. So, how much of this, given that the performance is kind of middle-of-the-pack-ish — again, slightly better than the index, but still middle-of-the-pack-ish — might this also be the result of, like, they got a really good marketing team?

Todd Rosenbluth: So I… there’s a couple of things in there that you said. Maybe I won’t get to all of it, but yes, T. Rowe Price entered the ETF marketplace, I think, five years ago. It was around COVID when they launched their first. And those were semi-transparent actively managed ETFs, and we’ve seen money go into those original products. 

They were originally equity products, but TAGG is a slightly newer product. The firm T. Rowe Price has increasingly been committing towards the ETF space, launching newer products, bringing some of their best and brightest into the space. So, this is a shout-out to T. Rowe Price and the success that they’re having within the ETF space. This is a shout-out to active fixed income that we’ve seen punching above its weight. 

Investors have long turned to active management in fixed income, but they’ve done so in the mutual fund world. And T. Rowe Price is a firm they might be familiar with in the mutual fund world. This is now a more than, I believe, three-year-old active fixed income ETF. So, it now gets that Morningstar Star Rating that people still care about. 

This fund is doing what it should do. It’s very cheap, at eight basis points. I’m not sure if you’re going to ask me about that, so let me get that out of the way: eight basis points for active management. So, this is different than the AGG. It takes sector differences within the bond space — underweighted towards treasuries and overweighted towards almost everything else that you could find within the investment-grade bond universe. It’s doing what it should do, and I’m happy to be talking about it again.

Chuck Jaffe: I did notice the eight basis point expense ratio, and yeah, that makes it a champ when you call active management and you’re paying that little for it. So, you mentioned it before I had a chance. You talked about the Morningstar Star Rating. It is middle of the pack. It’s a three-star in terms of the rating that it’s gotten from Morningstar to this point. 

But again, you’re liking the expense ratio, the management, et cetera. And I’m curious, because we are at a spot where we started a rate-cut cycle. We’re not quite sure how that’s going to play out, but we’re expecting more. Bond funds in a rate cut cycle can get a little bit hairy. 

Typically, you ride it out and they’re not hairy at all, but in those moments they are hairy. Can I assume that this is not really a timing call, that you’re not doing this because of what you might expect us to hear from Jerome Powell this week?

Todd Rosenbluth: Correct. This is less of a timing call. This would be a strategic position for people who are considering the TAGG ETF, and not a tactical one. This is a core bond fund. This is actively managed. 

So, this could do one of two things: This could complement your existing index-based strategy, or if you’re a believer in active management, but you’ve been building a portfolio and overweighting certain sectors or underweighting certain sectors in the bond market, this is a good way to be able to do it. 

So, this is less of a timing play. But, you’re right. We had our first in a while rate cut in September. We are expecting — and I think the market is expecting — one or two more before the end of the year, or 25 or 50 basis points, whether that’s one or two cuts in two different time periods, to be determined. And in times of volatility in the bond market, I like to say people turn to active management. 

I think that is often the case because you have somebody navigating this, and you’re not on your own as an individual or as an advisor that’s running the portfolios. So, if you’re not focused on the day-to-day movement of interest rates and the yield curve, the T. Rowe Price team is focused on that and can be somebody to lean into.

Chuck Jaffe: And you did mention in there that this could go with if you had an index strategy. If somebody already has an active strategy as an intermediate-term core bond fund, this is one of those ones that, yeah, it won’t really apply to you. 

We know that ETF of the Week is not designed to build the ideal portfolio because it would be way too many funds, etc. But it is that idea that you don’t need this if you have an active fund in the same space. You might want this if you’re passive?

Todd Rosenbluth: Yeah, so yes, to the second point, if you’re a passive investor and cost-conscious as an investor — and that’s why you’ve turned to passive — this can be a good complement. If you are in an expensive mutual fund or an expensive active ETF and it’s underperforming, there’s always a time to make a swap. 

And this is a good fund. It’s relatively cheap. It’s relatively steady and consistent in its performance. So you’re not having these swings. So it’s not top and then bottom of the deciles in the Morningstar ranking. This is a pretty “Steady Eddie” fund. So, we find that around this time in the year, in the fourth quarter, many people are looking to do tax-loss harvesting. 

They’ve had a position for a while, they’re not happy with it, and/or they’re anticipating capital gains that are going to be coming to them. That is often what happens in the fourth quarter or soon after the fourth quarter. TAGG is a great fund, in my opinion, to consider for somebody who’s unhappy with what they’re getting from their active management: Steady Eddie, low cost.

Chuck Jaffe: I love that clarification. I love the information that we got there in TAGG, it’s it! T-A-G-G, the T. Rowe Price QM U.S. Bond ETF. Yeah, the fund so nice, it’s now been “ETF of the Week” twice in just over a year — just under — twice in just under a year. Todd, great stuff. Thanks as always for joining me.

Todd Rosenbluth: I’ll see you next time.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yeah, I’m Chuck Jaffe. And if you like what you heard here, well, check out my full hour-long weekday podcast by going to MoneyLifeShow.com or by searching for it wherever you find your favorite podcasts. 

Now, if you’re searching for more information on your favorite ETFs, make sure you’re going to VettaFi.com to include their details into your search. It’ll make you a better investor. They are on X at @Vetta_Fi, and Todd Rosenbluth, their head of research — my guest here on ETF of the Week — he’s on X as well, at @ToddRosenbluth. 

Make sure you don’t miss an episode by following along on your favorite podcast app. And until next week when we do this again, happy investing everybody!

Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author. 

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