Thornburg Core Plus Bond ETF: Navigating Rising Rates with Active Management and Income Focus

In an era of persistent inflation and aggressive monetary tightening, income-focused investors face a paradox: rising interest rates typically erode bond prices but also create opportunities for higher-yielding alternatives. The Thornburg Core Plus Bond ETF (TPLS) emerges as a compelling candidate in this landscape, leveraging active management and strategic flexibility to balance risk and return. By prioritizing high-quality investment-grade bonds while selectively allocating to below-investment-grade opportunities, TPLS aims to deliver consistent income without sacrificing capital preservation—a critical attribute in volatile rate environments [1].

TPLS’s active management strategy is anchored in a "flexible, unsiloed" approach to duration, sectors, and structures. This allows the fund to dynamically adjust its portfolio in response to shifting market conditions, such as the Fed’s 2022-2023 tightening cycle, which saw the federal funds rate surge from near zero to 5.33% [2]. For instance, the fund’s 25% allocation to below-investment-grade securities enables it to capitalize on relative value opportunities in sectors like asset-backed and non-agency mortgage-backed securities, where mispricings often arise during rate hikes [1]. This sector agility contrasts with passive bond funds, which are constrained by rigid benchmarks and may underperform in fragmented markets.

A key strength of TPLS lies in its risk management framework. Portfolio managers Lon Erickson and Christian Hoffmann emphasize a conservative philosophy, taking on risk only when they believe it will be adequately compensated [1]. During rising rate periods, this translates to shorter-duration holdings and active duration adjustments to mitigate price volatility. For example, in 2023, as inflation expectations spiked, TPLS likely reduced exposure to long-duration bonds—whose prices are most sensitive to rate hikes—while increasing allocations to sectors with higher yield potential, such as corporate bonds with strong credit fundamentals [3]. This proactive stance aligns with Thornburg’s broader commitment to prudent risk management, a hallmark of its fixed-income strategies [3].

While TPLS’s dividend yield currently stands at 0.00%—below the 4.62% average for its category [4]—this metric may not reflect its long-term income potential. The fund’s focus on total return through capital appreciation and income generation suggests that its yield could normalize as interest rates stabilize. Historical data on similar active bond funds, such as T. Rowe Price’s offerings, indicate that disciplined active management can outperform passive strategies during rate hikes, with excess returns averaging 0.78% annually over 20-year periods [5]. Though TPLS lacks specific historical performance data during recent rate cycles, its structural advantages—such as sector flexibility and active duration management—position it to navigate rising rate environments more effectively than traditional core bond funds.

Critically, TPLS’s approach underscores the importance of aligning risk tolerance with income objectives. By blending high-quality bonds with strategic risk-taking in select sectors, the ETF offers a middle ground between the safety of government bonds and the yield potential of high-yield corporates. This balance is particularly valuable in a rising rate environment, where investors must weigh the trade-offs between capital preservation and income generation.

Source:
[1] Thornburg® Core Plus Bond ETF | TPLS,
https://www.thornburg.com/product/etfs/ecb/TPLS/
[2] U.S. federal funds rate 1954-2025,
https://www.statista.com/statistics/187616/effective-rate-of-us-federal-funds-monthly/
[3] Thornburg Core Plus Bond ETF (TPLS),
https://www.aaii.com/etf/ticker/TPLS
[4] Thornburg Core Plus Bond ETF (TPLS),
https://www.aaii.com/etf/ticker/TPLS
[5] T. Rowe Price Active Management Study,
https://www.troweprice.com/personal-investing/resources/insights/how-our-funds-generated-more-return-more-often.html