Investors are increasingly focusing on bond exchange-traded funds (ETFs).
Why it matters: During the first nine months of 2025, significant amounts, amounting to hundreds of billions, were invested in bond ETFs. Additionally, a variety of these strategies have emerged in recent years. It’s crucial to note that not all bond ETFs come with the same level of risk. So, what should investors think about before making any changes to their portfolios? Dan Sotiroff, a senior manager research analyst, weighs in. Morningstar ETF Investor discusses this in our newsletter, along with our top five recommendations for income investors.
12 questions about bond ETFs in 2025
- What’s fueling investor interest in bond ETFs this year?
- When it comes to returns, how do passively managed bond ETFs stack up against actively managed ones?
- There are four primary types of bond ETFs. What sets them apart?
- This month’s issue of Morningstar ETF Investor analyzes numerous bond ETFs. What makes the Core Bond ETF a worthy part of an investment portfolio?
- Which top ideas have received a favorable rating from Morningstar?
- Transitioning from lower-risk options to Core Plus, what do these fixed income ETFs typically offer that index-tracking ETFs don’t?
- Can you name a Core Plus bond ETF that holds a Gold rating from Morningstar?
- Multi-sector bond ETFs involve slightly higher risk but also promise potentially better returns. Should income investors prioritize these over others?
- What are some recommended multi-sector bond ETFs to consider?
- High-yield bond ETFs are the riskiest in this discussion. What additional risks are associated with chasing higher yields?
- Morningstar currently doesn’t rate actively managed high-yield bond ETFs. Should income investors be aware of anything specific?
- What should individuals keep in mind when determining if a bond ETF is a good fit for their portfolios?
Key insights on the rising popularity of fixed income ETFs in 2025
“Many equity ETFs are becoming oversaturated. We’ve explored various types: indexes, strategic beta, themes, ESG, and so on. It’s a crowded field, competing heavily on price. So, when we look for new areas where innovation can thrive, fixed income markets stand out.”
Key takeaways: Determine how you want a bond ETF to function in your investment strategy. These ETFs can effectively diversify stock holdings, but Sotiroff warns that their diversification benefits may diminish with increased risk. The editors from ETF Investor recommend considering core index-tracking bond ETFs from Vanguard or iShares, which hold high ratings from Morningstar. If you’re open to accepting more risk for potentially greater returns, there are options in Core Plus, multi-sector, and high-yield bond ETFs.
Explore more about Morningstar’s 2025 Fixed Income ETF
By 2025, an estimated $1 trillion is expected to flow into exchange-traded funds (ETFs), with one-third of that hitting bond ETFs. Passively managed fixed income ETFs have a slight edge and continue to lead over their actively managed counterparts. Many investors use the oldest and most recognized bond ETFs, such as Vanguard and iShares, as their foundational investments.
Bond ETFs attract investors for various reasons, including saving for a home or early retirement. Morningstar’s Tori Brove discusses the top bond ETFs across three categories: core bond funds, short-term bond funds, and specialty bond funds. On a different note, Lan Anh Tran reviews three excellent fixed income ETFs that are yielding positive results.
Noteworthy securities mentioned:
Vanguard Total Bond Market ETF BND
iShares Core U.S. Aggregate Bond ETF AGG
Fidelity Total Bond ETF FBND
JP Morgan Income ETF JPIE
Vanguard High Yield Active ETF VGHY
In case you missed it: Insights from Sotiroff on July 25 covered the JPMorgan Equity Premium Income ETF JEPI, another exchange-traded fund from JPMorgan.
