Following the changes to the capital gains tax investors have turned to fixed interest ETFs. The largest monthly inflow into fixed interest ETFs occurred in July.

Making asset allocation changes based on tax should be carefully considered. Asset allocation is the biggest driver of long-term return outcomes and in an environment where taxes will be higher many investors may need a higher pre-tax return to achieve their goals.

For investors who are looking to gain more fixed interest exposure Morningstar analysts highly rate the following three ETFs.

PIMCO Diversified Fixed Interest Act ETF (ASX: PDFI)

This strategy maintains a simple 50/50 allocation to Pimco’s Australian Bond and Global Bond. Investments are made across a mix of domestic and global government, semigovernment, and corporate bonds, in line with each fund’s respective benchmark. The focus is on investment-grade securities in developed markets but can include high-yield, emerging-markets, inflation-linked bonds, and currency positions, facilitated by its large global investment team. The approach revolves around diversification, adding incremental returns from multiple sources. Pimco takes a long-term approach, believing that secular trends offer the best opportunities to add value when most investors are focused on short-term factors. The firm holds an annual forum at its Newport Beach, California, base for teams from across the globe. Here, medium- to long-term (three- to five-year) outlooks on macroeconomic issues are determined, which in turn drive duration views and opinions on credit quality. A quarterly cyclical forum projects shorter-term trends to help determine which sectors have the greatest risk/reward appeal. Once the major macro themes are in place, sector specialists do rigorous credit analysis to identify the best ideas to be implemented by the portfolio managers. In the global sleeve, Pimco separates bond and currency decisions, seeing them as two distinct calls.

This is a well-diversified combined portfolio.

The Australian sleeve’s capacity to invest up to 30% offshore provides some room to deviate from the 50/50 Australia/global strategic split. As of late 2025, Pimco favors an overweight to interest rate duration, particularly in Australia and the UK, with an underweight to US duration. Both the Australian and global sleeves of the strategy have continued their recent trend of keeping duration below their respective benchmarks.

Overall, the Australian sleeve’s slight net duration underweight over 2022 to late 2024 reversed to a modest net long position over 2025. It was a similar story for the global sleeve, with interest rate risk increasing after keeping duration sub-benchmark for most of the past three years on the basis that yield levels were attractive.

Given tight valuations and an uncertain medium-term outlook, Pimco has grown increasingly selective on investment-grade corporate credit, focusing on senior financials. The global strategy has also completely eschewed high-yield credit. The team looks to identify higher-spread sectors that it feels offer lower credit risk than corporate bonds; Danish mortgages and US agency mortgages were long-term favorites, though the team recently took profits on both after strong performance. This core allocation is well-diversified and invests mainly in higher-credit-quality securities.

The ETF earns a Gold Medalist Rating from our analysts and charges a total cost ratio of 0.55% per year.

iShares U.S. Treasury Bond AUDH ETF (ASX: IUSG)

IShares’ portfolio managers employ representative sampling to effectively capture the full US Treasury yield curve.

The ICE US Treasury Core Bond Index includes Treasury bonds with between one and 30 years remaining to maturity. Qualifying bonds must have at least USD 300 million in outstanding face value. The index is market-value-weighted and rebalances each month. This results in a conservative portfolio that limits return potential but also caps risk.

The fund’s longer-than-average duration makes it more sensitive to interest rate movements than its average category peer. This means that when interest rates unexpectedly rise, this fund will suffer more than less sensitive peers. Its average effective duration stands at 5.07 years, about seven months longer than the typical peer’s portfolio as of December 2025. The current difference is relatively minor, but its average effective duration has historically hovered around two years more than the category average.

While interest rate risk is elevated, credit risk is muted. Category peers are similarly safe, but many hold non-Treasury government bonds like agency mortgage-backed securities that carry prepayment risk. Treasuries do not. The portfolio holds only US Treasury bonds, which are backed by the full faith and credit of the US government. This should ensure virtually no risk of default.

The politicization of the debt ceiling is a watchpoint, though. US debt was downgraded in 2023 to AA from AAA by ratings agency Fitch, which cited political standoffs related to the debt limit. Still, the risk of default is seen as very low, and investors should feel comfortable with the safety of the Treasury securities held in this portfolio.

The ETF earns a Silver Medalist Rating from our analysts and charges a total cost ratio of 0.17% per year.

PIMCO Global Bond Active ETF (ASX: PGBF)

Pimco’s top-down macroeconomic views guide the strategy’s broad contours. Within the scope of those themes, Andrew Balls and his team consider relative valuations to determine sector, country, and yield-curve positioning. The setup is similar to that of many global-bond peers, but the approach also allows for considerable flexibility, with a maximum allocation to below-investment-grade debt of 10% and no formal limit on emerging-market exposure. For example, when corporates reached record-cheap levels during the global financial crisis in 2008, previous manager Scott Mather shifted more than half the portfolio into corporate credit. While Balls did not radically shift the portfolio in the early 2020 covid-induced selloff as his predecessor did in 2008’s dislocation, he took advantage of several opportunities in sovereigns and credit. The portfolio’s interest rate duration has generally stayed within a 2.0-year band of the index’s duration, though it has more frequently been below the benchmark under Balls’ watch. Meanwhile, well-timed, tactical positioning in developed-market sovereigns, as well as agency mortgages, structured credit, and emerging-market debt has been a recurring feature of the portfolio. The strategy keeps the bulk of its non-US currency exposure hedged back to the US dollar, but almost always puts on small, tactical-currency bets that mirror those of other Pimco strategies.

After keeping the strategy’s duration below that of its benchmark for most of the past three years, the team added back interest rate risk, given what it perceived to be attractive yield levels. As of December 2025, the strategy’s effective duration stood at 6.8 years compared with 6.3 years for the benchmark (and compared with 5.7 years a year before). Duration overweightings were focused on the UK, Australia, and Italy, but the fund also earned a significant contribution to duration from its stake in US agency mortgages, as well as a sleeve of US Treasury Inflation-Protected Securities. Meanwhile, the team remained selective within corporate credit (only 11% of assets), focusing on senior financials while completely avoiding high yield. As an alternative to “generic” investment-grade corporate fare, the team looks to identify higher-spread sectors that it feels offer lower credit risk than corporate bonds. Long-term favorites have been Danish mortgages and US agency mortgages, though the team took profits on both after strong performance in recent years. Conversely, the team has recently focused more on investment-grade emerging-market debt (both in hard currency and local currency), which accounted for a total of 22% of assets. It also maintained low single-digit shorts in the Singapore dollar, Australian dollar, and Canadian dollar, against a basket of higher-yielding currencies, particularly in Latin America and Eastern Europe.

The ETF earns a Silver Medalist Rating from our analysts and charges a total cost ratio of 0.56% per year.