For years now, advisors and investors alike have been pouring significant attention — and inflows — into the broad spectrum of fixed income ETFs.
There have certainly been plenty of good reasons to do so in the past few years. Many strategies, such as high yield bonds and investment grade corporates, have enjoyed robust performances, generating strong income and long-term return potential.
However, as the saying goes, past performance is not indicative of future results. 2026’s market is shaping up to be a new one entirely, with different risks and rewards for portfolios to navigate around.
This was the topic at hand for the fixed income panel of the latest VettaFi Symposium, ‘Winter Symposium: New Year. Same Strategy’. On the panel, Samarth Sanghavi, Head of Fixed Income Products at TMX VettaFi, broke down the state of play for the 2026 fixed income market with moderator Kirsten Chang, Senior Industry Analyst at TMX VettaFi.
Fate of the Fed
To begin, Chang first asked Sanghavi for his perspective on the current interest rate environment. Sanghavi noted that there are “two big threads to pull on” in regards to the future of policy from the Fed – the narrative of economic conditions, and the political reality we find ourselves in.
He pointed to Powell’s recent remarks about how the economy may be slowing down, but there remains signs of resiliency. The economy remains relatively stable, and labor conditions are not too bad, so the Fed does not have as much of a reason to rush into cuts. As such, Sanghavi’s baseline expectation for 2026 is to see two or three quarter-point cuts.
“Now, while the economic framework still dominates today, the approaching transition in the Fed leadership does introduce uncertainty,” Sanghavi added. “A new chair could shift the reaction function, and the political overlay, in my mind, has the potential to influence the pace of cuts in a way that markets might not have fully priced in today.”
Making the Most of Your Cash
Moving on, Chang noted that many investors are still parked in cash right now. Turning to Sanghavi, she asked him where opportunities in the fixed income market are to put that cash to work.
Sanghavi noted that with yields at a three-year low, cash is not nearly as risk-off as it used to be. Instead, he asserted the best opportunities are beyond cash, citing strategies like intermediate-duration treasuries, liquid mortgage-backed securities, and investment-grade credit. What these fixed income strategies have in common is the potential for incremental yield with risk in control. According to Sanghavi, this is very crucial in a rate-cutting environment.
“Even with a disciplined approach, a modest redeployment from money markets into these areas will have a significant change on portfolio without taking undue duration,” Sanghavi noted.
Fixed Income Beyond Traditional Indexing
Even though active fixed income products are on the rise, index-based fixed income solutions can oftentimes offer advantages that active products can not. Chang asked Sanghavi to explain how TMX Vettafi’s indexes look to stand out from the crowd.
Sanghavi began by asserting that the traditional fixed income indexes were not constructed in an investor-driven manner, instead being issuer-driven. Instead, what he and his team look to do is to take a dual-layer format to indexing.
The first layer is created by taking a traditional cap-weighted index and using it as a baseline to craft a sub-index that maintains similar portfolio characteristics, but in a more efficient manner. In this case, efficiency can come from both transaction costs and turnover.
From there, Sanghavi and his team then look to build the second layer. This layer is focused on performance and can come from a few different angles, including enhancing yield or dipping down into credit.
“What we’re going to end up creating is a suite of these products, so clients will eventually have the option to decide: Do they want to take on duration risk? Do they want to take on credit risk? Do they want to chase yield? But all of these are going to be sitting behind a mechanism that is just much more natural and understandable to trade and manage for portfolio managers,” Sanghavi added.
Sahghavi and Chang discussed plenty of other fixed income topics during the symposium panel, including currency hedging, duration risk, and more. To register for the symposium recap, click here.
For more news, information, and strategy, visit ETF Trends.
Originally published on ETF Trends
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