One of this year’s most glaring themes among fixed income exchange traded funds is investors’ preference for short duration, a theme that is benefiting ETFs such as the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB).
SPSB seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index. SPSB invests at least 80 percent of its total assets in securities designed to measure the performance of the short-termed U.S. corporate bond market.
“This is a solid option for low-cost, efficient exposure to U.S. short-term investment-grade corporate bonds. Its conservative strategy keeps credit and interest-rate risk low and has a durable cost advantage over Morningstar Category peers,” said Morningstar in a note out Wednesday. “However, the exchange-traded fund has a subpar index-tracking record compared with peers. And its portfolio tilts heavily toward the financials sector, which can disproportionately impact performance.”
SPSB’s underlying index “includes investment grade, fixed rate, taxable, US dollar denominated debt with $300 million of par outstanding, and is market cap weighted and reconstituted on the last business day of the month,” according to State Street.
Inside SPSB’s Popularity
As of Tuesday, Dec. 3, SPSB had $4.46 billion in assets under management, of which $1.13 billion has flowed into the fund this year. At a time when investors prefer short-term bond funds, SPSB is benefiting due to its option-adjusted duration of just 1.85 years.
“From inception through November 2018, the fund’s annualized return of 1.8% kept pace with the category average, lagging by 0.2% per year. But its lower risk profile paid off. This fund’s risk-adjusted return, as measured by Sharpe ratio, landed near the top quartile of its category during the same period,” according to Morningstar.
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SPSB is also popular with investors due in part to its low fee. The fund charges just 0.07% per year, or $7 on a $10,000 investment.
“The fund’s holdings are concentrated at the lower end of the investment-grade spectrum, with considerable exposure to bonds rated A or BBB,” said Morningstar. “These securities represent more than 80% of the portfolio. This concentration is largely driven by banks and issuers in the telecommunications sector.”
Morningstar has a Bronze rating on SPSB.
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