ETF Spotlight: Crossover Corporate Bonds | ETF Trends

ETF Spotlight on the SPDR BofA Merrill Lynch Cross Over Corporate Bond ETF (NYSEArca: XOVR), part of an ongoing series.

Assets: $25.8 million

Objective: The BofA Merrill Lynch US Diversified Crossover Corporate Index tries to reflect the performance of the U.S. Dollar denominated BBB and BB corporate debt from the U.S..

Holdings: Top holdings include CIT Group Inc 4.25 8/15/2017 0.9%, SLM Corp 6 1/25/2017 0.8%, NRG Energy Inc. 7.625 1/15/2018 0.7%, Chesapeake Energy Corp 6.625 8/15/2020 0.7% and Arcelormittal 5 2/25/2017 0.7%.

What You Should Know:

  • State Street Global Advisors sponsors the fund.
  • XOVR has a 0.30% expense ratio.
  • The ETF has 433 components and the top ten make up 7.2% of the overall portfolio.
  • Sector allocations include corporate industrial 66.0%, corporate finance 20.3% and corporate utility 13.3%.
  • Credit quality includes A 0.8%, Baa 50.3% and below Baa 48.9%.
  • XOVR has a 3.68% 30-day SEC yield.
  • The fund has an adjusted duration of 5.76 years.
  • The ETF is up 0.9% over the past month, up 1.6% over the last three months and up 0.9% in the past year.
  • Crossover corporate debt refers to corporate bonds rated at levels where the lower end of the investment grade debt meets the high end of speculative grade debt.
  • Basically, the bond fund holds debt with credit ratings around the Baa1 to Ba3, or BBB+ to BB- levels.
  • “Crossover bonds have less credit risk than many high yield bonds, yet generally offer higher yields than most investment grade bonds,” according to John Keller, Portfolio Strategist, Global Fixed Income, and David Mazza, Head of Research, at State Street Global Advisors. “In addition, because higher yielding corporate bonds tend to have shorter maturities, crossovers may have less sensitivity to interest rate changes (i.e., lower duration) than higher rated bonds.”
  • “This targets the portion of the U.S. Corporate bond market that has historically offered the best risk-adjusted returns as measured by Sharpe ratios,” the SSgA analysts added, refering to the BofA Merrilly Lynch US Diversified Crossover Corporate Index.

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