Madison Investments Launches New Active Bond ETF

The fund is the firm’s third launch in as many weeks.

Madison Investments, a Wisconsin-based asset manager, has launched the Madison Aggregate Bond ETF Madison Investments (MAGG), an actively managed bond fund, which is the firm’s third launch in three weeks. 

Madison, a firm that manages $24 billion in assets, primarily in separately managed accounts and mutual funds, has leaped into the exchange-traded fund market with both feet. Already this month, Madison launched two actively managed exchange-traded funds: the Madison Dividend Value ETF (DIVL) and the Madison Covered Call ETF (CVRD). 

MAGG aims to be a core fixed income holding for investors, with investments across that asset class. It currently has just over 40% of its money invested in asset-backed securities, roughly 30% in Treasuries and about 30% in corporate bonds. The fund’s holdings have an average duration of about six years, about the same as the Bloomberg Aggregate Bond Index, locking in current higher yields for years to come.  

“We think the best value right now is in mortgage-backed securities. Their yield compared to Treasuries is higher than its historical average right now,” said MAGG’s portfolio manager Mike Sanders in an interview. 

He thinks the bond investing environment is better than it has been for a long time. With yields no longer near 0%, as they were for much of the past decade, bonds should help provide diversification and income in a way they haven’t been able to. 

“The ‘income’ is finally back in ‘fixed income,’” he added. 

The launch of the active bond ETF comes on the heels of disastrous performance from bonds in 2022, when they fell in tandem with stocks. Sanders blames this on the fact that the Fed had to raise rates faster than normal off of a very low base and that bonds started the year with very low yields, so there was little income to offset falling prices. 

With much higher yields now, Sanders thinks bonds are in a much better place to deal with the normalization of rates from the Fed. He said the soonest the Federal Reserve will cut rates will be mid-2024.  

Madison plans to launch another bond ETF next week, the Madison Short Term Strategic Income ETF (MSTI). 

Contact Gabe Alpert at [email protected]