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When I check a particular fixed income ETF it usually shows me the portfolio managers for it. May I ask what is their role? I think every ETF has a benchmark, say a bond index. Now the fund is supposed to replicate this benchmark, so the owner could buy all the bonds from the benchmark and hold them. Or perhaps most of those bonds as long as tracking error is not that big? What is the role of the PM here? What is the expertise that is required here?

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ETFs (both stock and bond) can be actively managed or passively managed. If they are passively managed, the portfolio manager isn't doing too much other than trying to replicate the performance of the underlying index. That mostly involves just buying the securities in the underlying index in appropriate ratios but does sometimes involve replicating positions synthetically with options and other derivatives. If they are actively managed, on the other hand, the portfolio manager is trying to beat the comparable index. In that case, the portfolio manager is exercising much greater discretion and judgement. If you believe that actively managed funds/ ETFs can consistently outperform their benchmark index, it makes sense to invest in funds/ ETFs that are run by managers that have a history of beating their index.

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  • beating the index meaning get cheaper bonds? He is still required to track an index so the manager can't buy any bonds he likes but he can choose better once that meet the fit criteria? How is it measured then as all I have a small tracking error regardless of the choices.
    – Medan
    Feb 24, 2023 at 21:36
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    @Medan - If the ETF is passively managed, it tracks an index. If the ETF is actively managed, it does not attempt to track an index, it attempts to beat the index. There are plenty of funds/ ETFs that track the S&P 500, for example. And there are plenty of funds/ ETFs that invest in large cap stocks that seek to beat the return of the S&P 500. The same goes for any other index you want to choose. Feb 24, 2023 at 21:38

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