SPDR® SSGA Multi-Asset Real Return ETF (RLY) – Q4 2023 Commentary
During the fourth quarter of 2023, RLY finished up in absolute returns and returned 3.11% on a NAV basis. The fund held overweights to natural resource equities, gold, global infrastructure, and cash at the end of the quarter.
Performance
Driving underperformance an underweight to REITs and inflation-linked bonds with a targeted overweight to Energy. The Energy sector fell significantly in the final months as record production from US shale companies and concerns about future demand offset support from OPEC+ production cuts and resilient current demand which pushed the sector lower. REITs have been a persistent underweight due to poor price momentum and weak earnings sentiment in our quantitative models while the unstable commercial real estate outlook and rising rates for most of 2023 weighed on the sector. However, some softer economic data, combined with dovish commentary from Fed Chairman Powell and revisions to economic projections, renewed optimism for a soft landing on the back of aggressive rate cuts from the Fed in 2024. This jubilance sent yields plunging and improved risk appetite in November and December, benefitting a beaten down REITs sector which finished up over 15%. Inflation-linked bonds also benefited from the fall in yields. On the positive side, an overweight to gold aided performance. We held gold throughout the quarter and strong central bank buying, uncertainty in the Middle East, and increased optimism for aggressive Fed rate cuts in 2024, which brought real yields off their October highs, sent gold higher. An overweight to global infrastructure also aided performance as the defensive sector benefited from the move in yields and better-than-expected economic growth.
Portfolio Positioning and Outlook
Fund Performance
| As Of | QTD (%) |
YTD (%) |
1 Year (%) |
3 Year (%) |
5 Year (%) |
10 Year (%) |
Since Inception Apr 25 2012(%) | |
|---|---|---|---|---|---|---|---|---|
| NAV | Dec 31, 2023 | 3.11 | 2.73 | 2.73 | 10.80 | 9.22 | 3.06 | 2.68 |
| Market Value | Dec 31, 2023 | 3.12 | 2.64 | 2.64 | 10.82 | 9.68 | 3.06 | 2.68 |
| Bloomberg U.S. Government Inflation-Linked Bond Index | Dec 31, 2023 | 4.75 | 3.84 | 3.84 | -1.28 | 3.14 | 2.48 | 1.67 |
| DBIQ Optimum Yield Diversified Commodity Index Excess Return | Dec 31, 2023 | -8.32 | -10.07 | -10.07 | 15.05 | 9.18 | -0.91 | -1.43 |
Source: State Street Global Advisors, as of December 31, 2023.
Past performance is not a reliable indicator of future performance. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. All results are historical and assume the reinvestment of dividends and capital gains. Visit www.ssga.com for most recent month-end performance. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index.
Performance returns for periods of less than one year are not annualized. Performance is shown net of fees.
Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.
The market price used to calculate the Market Value return is the midpoint between the highest bid and the lowest offer on the exchange on which the shares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. If you trade your shares at another time, your return may differ.
Gross Expense Ratio: 0.50% Net Expense Ratio: 0.50%
The gross expense ratio is the fund’s total annual operating expenses ratio. It is gross of any fee waivers or expense reimbursements. It can be found in the fund’s most recent prospectus.
Portfolio Allocations
| Assets | Target Weight(%) | Benchmark Weight(%) | Ranges (%) |
Over/Underweight (%) |
Change Since Beginning of Quarter(%) |
|---|---|---|---|---|---|
| Natural Resources | 37.3 | 30.0 | 0 - 70 | 7.3 | 0.5 |
| Global Infrastructure | 24.5 | 20 | 0 - 20 | 4.5 | -0.5 |
| Commodities | 21.0 | 20.0 | 0 - 25 | 1.0 | -1.0 |
| Inflation Linked | 11.3 | 20.0 | 0 - 50 | -8.8 | 2.0 |
| REITs | 1.0 | 10.0 | 0 - 25 | -9.0 | -0.5 |
| Cash | 5.0 | 0.0 | 0 - 50 | 5.0 | -0.5 |
| Total | 100.0 | 100.0 | 0.0 | 0.0 |
Source: State Street Global Advisors Investment Solutions Group, as of December 31, 2023. Portfolio allocations are as of the date indicated, are subjected to change and should be relied upon as current thereafter. This information should not be considered a recommendation to invest in particular sector or to buy or sell any security shown. The benchmarks weights indicated reflect the weight of custom benchmark. The "Custom Benchmark" is created by State Street Global Advisors and maybe different for different accounts.
At the close of 2023, disinflation was a major thematic, and although the path lower wasn’t linear, headline inflation has moderated considerably due to easing goods and energy prices and base effects. Looking forward, disinflation should continue as impacts from the previous Fed rate hikes work through the economy and base effects continue to push the Consumer Price Index (CPI) lower. However, if history is a guide, inflation tends to come in waves. It’s not difficult to find potential drivers for renewed upward pressure on prices. Recent attacks on shipping lanes in the Red Sea have forced companies to divert their vessels. These latest attacks add to the uncertainty in the Middle East which poses a threat to global trade and could drive energy prices higher should things escalate, particularly with OPEC+ pledging to support higher prices. After easing considerably in 2022, stress on supply chains, as measured by the NY Fed’s Global Supply Chain Pressure Index, has increased in 2023. The NY Fed noted in research released in January 2022 that global supply factors are very strongly associated with consumer price index goods inflation historically. Elsewhere, there is a potential for shelter components of CPI inflation to rebound later in 2024 as home prices, as measured by the S&P CoreLogic Case-Shiller US Home Price Index, move higher and other real time rent measures like the Zillow Observed Rent Index or Apartment List appear to have rolled over, or at the very least, found a bottom. However, the biggest risk for another wave of inflation is premature rate cuts from the Fed if the battle against inflation is not sufficiently won. With financial conditions already easing, reducing rates at a time when wage growth is still strong could create more demand, pushing prices for goods and services higher.
Despite resilient economic growth, some policy support in China and production restraint from OPEC+, commodities have failed to find solid footing as other risk assets move higher. From our assessment, we anticipate muted returns ahead for commodities. Our momentum indicator, which seeks to determine if the current environment is beneficial, remains positive, but to a lesser degree. Additionally, our evaluation of the curve structure for various commodities suggests future prices may fall and weighs on our outlook.
Although the slower growth environment is one that may create challenging conditions for commodity performance, we continue to see a strong setup for gold. The strong performance in December that saw gold push up toward $2,100 per ounce was enough to lift the last of our technical indicators to embrace the idea that gold is firmly in a positive trend — a very strong reading at present. Couple that with some reinforcing macro conditions, including a weaker US dollar and easing policy rates, and the rally in gold looks to be in good shape at the onset of 2024.
Both REITs and inflation-linked bonds could benefit from further normalization of yields as the Fed begins to cut rates, but stickier inflation will likely keep that on hold for now.
Overall, prospects for a soft landing and lower yields, along with rising geopolitical tensions, could support real assets throughout 2024.
Market Regime Forecasts
The Market Regime Indicator (MRI) employs a quantitative framework and forward-looking market indicators, including equity- and currency-implied volatility, as well as credit spreads, to identify the current market risk environment. Tracking risk appetite shifts in the market cycle helps frame tactical asset allocation and volatility targets.
A Look at the MRI
