During the second quarter of 2023, XLSR finished up,returning 8.27% at NAV. At the end of the quarter, the fund held overweight positions in Consumer Discretionary, Consumer Staples, Industrials, and Health Care.
The equity sector allocations detracted from performance in Q2. Industrials exhibited robust price momentum and strong sentiment in our quantitative models, but the sector sank on a stronger US dollar in May and expectations for higher Fed rates, which hurt our targeted overweight. Industrials recovered in June, but weak performance in April and May weighed on the sector. An allocation to Materials in April and the early part of May was disadvantageous as weaker growth prospects and lower commodity prices dragged on companies that develop and process these commodities. On the positive side, a targeted allocation to Communications Services in May and Consumer Discretionary, which was held most of the quarter, both aided performance.
|As Of||QTD (%)||YTD (%)||1 Year (%)||3 Year (%)||5 Year (%)||10 Year (%)||Since Inception
Apr 02 2019
|NAV||June 30 2023||8.27||12.01||15.91||12.07||-||-||11.14|
|Market Value||June 30 2023||8.27||11.96||15.80||12.02||-||-||11.14|
|S&P 500 Index||June 30 2023||8.74||16.89||19.59||14.60||12.31||12.86||12.82|
Source: State Street Global Advisors, as of June 30, 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: 0.70% Net Expense Ratio: 0.70%
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.
|Name||Target Weight (%)||Strategic Weight (%)||Active Tilt (%)||Change Since Beginning of Quarter (%)|
|The Industrial Select Sector SPDR Fund (XLI)||23.11||8.36||14.75||-0.17|
|The Technology Select Sector SPDR Fund (XLK)||21.88||27.63||-5.75||-4.76|
|The Health Care Select Sector SPDR Fund (XLV)||20.82||13.57||7.26||8.98|
|The Consumer Discretionary Select Sector SPDR Fund (XLY)||16.43||10.37||6.06||11.88|
|The Consumer Staples Select Sector SPDR Fund (XLP)||10.71||6.75||3.96||8.58|
|The Energy Select Sector SPDR Fund (XLE)||4.75||4.24||0.51||-1.21|
|The Communication Services Select Sector SPDR Fund (XLC)||2.10||8.73||-6.63||0.83|
|The Financial Select Sector SPDR Fund (XLF)||0.00||12.65||-12.65||-16.28|
|The Materials Select Sector SPDR Fund (XLB)||0.00||2.47||-2.47||-7.85|
|The Utilities Select Sector SPDR Fund (XLU)||0.00||2.63||-2.63||0.00|
|The Real Estate Select Sector SPDR Fund (XLRE)||0.00||2.41||-2.41||0.00|
Source: State Street Global Advisors Investment Solutions Group, as of June 30, 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.
While China’s growth has underwhelmed and Germany has entered a technical recession, forecasts for a US recession continue to be pushed back further into 2023 and even 2024. Tightening credit standards are a growing headwind, and combined with persistent inflation and sustained monetary policy tightening, they will weigh on economic activity and likely cause a recession. However, this is not a high conviction view for us and the strength among consumers and corporations, along with an eventual policy pivot from the Fed, should lighten any impact.
Investor risk appetite remains strong and resilient when evaluating with the Market Regime Indicator, our proprietary risk sentiment indicator. Upside surprises to inflation, the debt ceiling negotiations and the repricing of Fed monetary policy expectations provided some uncertainty and unnerved markets in May, but investors appeared focused on resilient economic growth in the US. Overall, our risk indicator points to a favorable risk environment for equities.
Risk sentiment isn’t the only favorable tailwind for equities; our fundamentally driven model continues to forecast positive returns. Bottoming towards the end of 2022, analysts expectations for both earnings and sales have rebounded, with sentiment a positive for equities. Our evaluation on the health of company balance sheets is favorable and supports our outlook for equities. Lastly, valuation metrics, free-cash-flow and buyback yields, remain attractive and buoy equities.
Within equities, we are constructive on US equities, which benefit from strong macroeconomic indicators. Additionally, our assessment of balance sheet health is favorable while analysts expectations for sales also support the region.
At the sector level, we currently favor Industrials, Consumer Discretionary, and Materials. Industrials exhibit strong price momentum with short-term measures improving following strong performance in June. Elsewhere, earnings expectations have weakened, but analysts anticipate stronger sales. Supported by a strong labor market and elevated wage growth, consumers continue to spend which has supported the Consumer Discretionary sector as reflected in our models with vigorous price momentum and sturdy expectations for both sales and earnings. Materials experienced improvement across multiple factors. Sentiment remains negative but is less of a drag while price momentum has turned positive. Additionally, valuations are attractive.
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
S&P 500 Index
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