T. Rowe Price QM U.S. Bond ETF (TAGG US) – Portfolio Construction Methodology

The investment strategy underpinning the actively managed T. Rowe Price QM U.S. Bond ETF targets broad USD investment-grade fixed income—Treasuries, agencies, MBS (including TBAs), corporate bonds, and securitized assets—while maintaining risk characteristics comparable to the Bloomberg U.S. Aggregate Bond market. A quantitative multi-factor framework and fundamental research set sector weights, curve positioning, and security selection, emphasizing valuation, carry/roll, quality, prepayment/option risk, and liquidity. An optimizer and risk model constrain active duration, sector, and issuer exposures, with tight tracking-error and liquidity bands guiding position sizing. The portfolio may include USD-denominated foreign issuers when fundamentals and liquidity are satisfactory. Trading prioritizes executable depth and expected implementation cost. Rebalancing is systematic with model refreshes, cash flows, and mortgage pool rolls; positions are trimmed or exited on deteriorating credit metrics, adverse option-adjusted relative value, or when exposures breach risk thresholds. The fund avoids concentrated bets and maintains diversified, benchmark-aware construction.

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