Fixed Income Exchange Traded Funds (ETFs) have attracted more than US$300 billion in inflows so far in 2025, putting the category on track for its strongest year yet. At the same time, the performance dispersion between active and passive managers has widened.

The latest SPIVA Australia Scorecard (as at 28 October, 2025) shows that active fixed-income managers in Australia continue to outperform their equity counterparts, with only 41% underperforming their benchmarks over one year compared with 69% of active equity funds.

It is the third consecutive year in which active fixed-income managers have outperformed active equity managers on a relative basis, according to the SPIVA Australia Scorecard, which compares the performance of actively managed funds to their benchmarks.

The performance differential is also notable over longer periods. On a 15-year basis around 85% of Australian equity managers underperformed their benchmarks compared to 76% of active Australian bond managers.

While the performance gap reveals where an active approach has been more effective, some advisers are looking beyond pooled exposures like ETFs to achieve even greater precision by building holdings bond-by-bond.

Jessica Rusit, Director of Investment Strategy Group at FIIG Securities, says this more nimble approach gives investors the ability to tailor their fixed-income exposure:

“The beauty of bonds is they are tradeable so you can very easily tweak a portfolio to suit the sort of return a client is trying to achieve, or to align with specific preferences like ESG,” says Ms Rusit. 

This flexibility was highlighted recently when the domestic rates outlook underwent a sharp re-rating: 

“Only a month ago, markets were pricing in rate cuts next year, before quickly pivoting to expectations of further rate hikes in 2026,” says Ms Rusit. “If you’re invested in a fixed-income ETF at that point, you’re largely constrained by the holdings in that portfolio and may need to exit entirely to reposition. With direct bond ownership, you can instead adjust just a handful of holdings tailoring the portfolio to changing economic conditions.”

Behind the trend 

Fixed-income ETFs were the fastest growing segments of the Australian ETF market in 2025 as investors piled into capital-stable exposures, particularly during volatile trading in November.

• Over the last 12 months the Australian ETF industry has grown by 33.8% or $82 billion, with fixed-income ETFs among the most in-demand categories, according to Betashares data.
• Investors piled $1 billion into fixed income ETFs in the volatile month of November, ranking the category as third most-popular behind international equities ($1.5 billion) and Australian equities ($1.2 billion).
• Fixed income has been one of the most active areas of ETF product development in 2025. More than 10 new fixed-income ETFs were launched in Australia during the year, including five active bond ETFs from PIMCO – the PIMCO Global Bond Active ETF (ASX: PGBF), PIMCO Diversified Fixed Interest Active ETF (ASX: PDFI), PIMCO Global Credit Active ETF (ASX: PCRD), PIMCO Australian Bond Active ETF (ASX:PAUS), and the PIMCO Short Term Active Yield Active ETF (ASX:EARN). A new global aggregate bond ETF was launched by BlackRock (ASX: AGGG) and Betashares introduced new credit-focused products – all reflecting sustained adviser demand for income and defensive exposures.
• The local activity is part of a global trend as issuers respond to strong inflows and renewed interest in bonds following higher-for-longer rate settings. In the first half of 2025, research firm ETFGI reported a record 1,308 new ETFs were launched globally which included 80 fixed-income ETFs.

For more information on these ETFs, including features and risks, please refer to the issuer’s Product Disclosure Statement (PDS) and Target Market Determination (TMD) available on their websites.

The renewed focus on fixed income highlights not just the performance of active managers, but the role bonds can play more broadly in portfolio construction. 

Ms. Rusit at FIIG Securities says bonds continue to occupy an important middle ground in portfolio construction.

“There is very much a place for bonds in a well-constructed portfolio,” Ms. Rusit says. “They sit higher in the capital structure than equities, so they’re typically lower risk, but they’re not as conservative as cash or term deposits either. 

“Bonds can provide income and diversification, and they offer a very different experience to equities, particularly for investors focused on capital preservation and cash flow.”

For advisers looking for tools to balance growth, income and capital preservation, direct bond investing can become especially valuable during periods of market uncertainty.

“At the moment, there's a potential opportunity where we are seeing investment grade bonds that are yielding over 6%. We're not talking about bonds that have long duration, so an investor isn't having to sacrifice credit quality or tenure to achieve a better return,” says Ms. Rusit.

“One of our key messages right now is the importance of building a well-diversified fixed income allocation by combining investment-grade, medium-term bonds offering attractive yields with floating-rate notes. Floating-rate bonds may provide higher cash flows, subject to market conditions and greater capital stability, because that rate is resetting, which is important when the rate outlook is a bit of an unknown going forward.”

Note: Higher yields can involve greater credit and liquidity risks. Bond values may fluctuate, and capital loss is possible. Floating-rate notes reduce interest rate risk but may increase credit and refinancing risk.

There’s now a plethora of opportunities for advisers to construct fixed income portfolios for clients by using either exchange traded funds or direct bonds. In some cases, a combination of the two investments may be an appropriate strategy to consider for clients.

AUSIEX provides tools and expertise to help you construct and manage fixed income portfolios. Contact us for more information.