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SPDR® DoubleLine® Total Return Tactical ETF – Q2 2021 Commentary


Performance
For the quarter ending June 30th, 2021, the DoubleLine Total Return Tactical ETF underperformed the Bloomberg Barclays US Aggregate Bond Index return of 1.83%. The U.S. Treasury curve flattened during the quarter with 2-year yields rising by 9 basis points (bps) and 10-year yields falling by 27 bps. US investment grade corporate credit was the best performing sector during the quarter and benefitted from the decrease in longer dated interest rates coupled with strong corporate earnings outlooks. Other fixed-rate corporate credit sectors such as emerging market debt and US high yield outperformed driven in part by price appreciation at the riskier edges of the markets. The commercial mortgage-backed securities (CMBS) portfolio benefitted from the steady reopening of major US metropolitan areas such as New York City and Los Angeles. Shorter duration sectors within the fund such as asset-backed securities (ABS), Bank Loans, Non-Agency MBS, and collateralized loan obligations (CLOs) posted positive returns but underperformed the benchmark as the longer duration assets held within the index saw more benefit from the decrease in long treasury yields. US Treasuries and agency residential mortgage-backed securities (RMBS) also generated positive returns, though underperformed the benchmark as riskier sectors tied to national reopening initiatives were generally more rewarded.1

Standard Performance

Quarter in Review
The duration of the portfolio slightly decreased by 0.55 years to finish the quarter at 4.2 years. The portfolio’s agency MBS allocation targets decreased by 4.5%, while increasing the US Treasury allocation targets by 2.5%, the non-agency RMBS allocation target by 1% and the ABS allocation target by 1%.

Asset Allocation

Security Type

Fund (%)

Index (%)

Agency Mortgage-Backed Securities

32.5

27.3

Treasury

24.6

37.8

Commercial Mortgage-Backed Securities

10.2

2.1

Non-Agency Mortgage-Backed Securities

8.1

0.0

Investment Grade Corporate

6.1

26.5

Emerging Markets

5.2

1.6

High Yield Corporate

5.0

0.0

Bank Loans

3.1

0.0

Asset-Backed Securities

2.0

0.3

Collateralized Loan Obligation

1.4

0.0

Government-Related

0.0

4.4

Cash

1.8

0.0

Total

100.0

100.0

Source: DoubleLine, State Street Global Advisors. Allocations are as of June 30, 2021 and are subject to change without notice. Asset allocation is a method of diversification that positions assets among major investment categories. Asset allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss.

Portfolio Positioning and Outlook
The current estimate for 2021 US real GDP year-over-year is to average 6.6%, with the second quarter being the strongest for the year.2 Consensus expectations are that inflation will be transitory with the heaviest pressure on supply chains and labor shortages likely behind us. Throughout the remainder of the year, we expect inflation to abate, though continue to come in above 2%. We anticipate the Federal Reserve will announce the tapering of their asset purchase program by the end of the calendar year, which in doing so skews the risks for US interest rates to rise. We are comfortable holding our current stance on duration given the recent run-up in credit and long-term headwinds for the US dollar. We see relative value in structured fixed income sectors as spreads remain attractive and investor demand remains strong.

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