Insights   •   Fixed Income

SPDR® DoubleLine® Total Return Tactical ETF – Q3 2021 Commentary

In the third quarter, the SPDR DoubleLine Total Return Tactical ETF outperformed the Bloomberg US Aggregate Bond Index by 0.10%. The relative outperformance was primarily driven by the fund’s shorter duration positioning relative to the benchmark, as US Treasury yields rose after the Federal Reserve announced it is preparing the tapering of its emergency purchase program. The best performing sector was Non-Agency Residential Mortgage-Backed Securities (RMBS) as it benefitted from strengthening household balance sheets, a continued increase in home prices, and an improvement in cure rates. Bank Loans and Collateralized Loan Obligations also generated strong returns over the period due to their interest income while elevated new issue volume was met with strong investor demand. Commercial Mortgage-Backed Securities (CMBS) also generated positive returns as market fundamentals continue to improve and delinquency rates decline. Strong Asset-Backed Securities performance can be attributed to aircraft related holdings as international travel restrictions were eased. Investment Grade corporate credit and Emerging Market debt performed poorly because of their longer duration profile.

Standard Performance

Quarter in Review:
The duration of the fund slightly decreased by 0.2 years to finish the quarter at 3.9 years. Sector allocations within the fund have been relatively unchanged over the quarter.

Asset Allocation

Security Type Fund (%) Index (%)
Agency Mortgage-Backed Securities 30.5 27.4
Treasury 24.5 38.5
Commercial Mortgage-Backed Securities 10.7 2.1
Non-Agency MBS 7.7 0.0
Investment Grade Corporate 6.2 26.1
Emerging Markets 5.0 1.4
High Yield Corporate 4.9 0.0
Cash 3.7 0.0
Bank Loans 3.1 0.0
Asset-Backed Securities 2.2 0.3
Government-Related 0.0 4.2
CLO 1.5 0.0
Total 100.0 100.0

Source: DoubleLine, State Street Global Advisors. Allocations are as of September 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
As the third quarter came to a close, we remain cautious on duration risk as we expect year-over-year inflation to remain high. The fund will likely maintain a duration shorter than the benchmark to best navigate a rising rate environment, which is the largest risk to performance in the near term as the Federal Reserve is preparing to taper its emergency purchase program. Two of the largest long-duration debt segments in the US market are Investment Grade corporate credit and US Treasuries. Because of their large presence in the market, they naturally make up sizeable allocations in the Bloomberg US Aggregate Bond Index. The fund will maintain exposure to both US Treasuries and Investment Grade corporate credit, though allocations within the fund to these sectors will likely remain smaller than the benchmark to best navigate a rising rate environment. Credit products have continued their strong recovery against a backdrop of a strengthening economy and robust housing market. There remains relative value in structured fixed income sectors as spreads remain attractive relative to corporate credit, while investor demand has remained firm.