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Case study: How an ETF helped an institutional allocator maintain market exposure while switching high yield bond managers

July 9, 2026

Key Takeaways:

A large institutional investor wanted to transition a high yield bond portfolio to a new manager due to underwhelming active performance.
Liquidating the entire portfolio or selling bonds over time would have reduced market exposure, altered the allocator’s desired asset allocation, and generated high transaction costs.
Instead, converting the bond portfolio to ETF shares through an Authorized Participant created a single, low-cost holding with enhanced liquidity from which to fund the transfer—keeping the assets fully invested in the market.

Investor profile & objectives

A large institutional investor was dissatisfied with the performance of one of its actively managed high yield bond portfolios and wanted to transition to a new fund manager.

The $300 million portfolio held roughly 900 bonds, which would need to be sold to raise funds for the new high yield bond portfolio. The allocator wanted to complete that transition in the most efficient way to minimize transaction costs and maintain its market exposure and desired high yield bond allocation during the process.

Challenges & constraints

The new fund manager offered to execute the transfer by selling the bonds in the existing portfolio and then buying replacement securities. But trading that many bonds could have taken several days, and the manager said trading costs could be as high as 24 basis points.

Liquidating the portfolio to generate cash for the purchase of new bonds was also less appealing, as it would have reduced the allocator’s market exposure by $300 million.

The ETF solution

The investor used the State Street® SPDR® Portfolio High Yield Bond ETF (SPHY) as an investment placeholder, taking advantage of the efficiencies offered by the ETF creation and redemption mechanism to facilitate the transition between high yield bond managers.

Working alongside the State Street ETF Capital Markets desk, the allocator engaged an Authorized Participant (AP) that could convert the existing high yield bond portfolio into SPHY shares. The State Street ETF Capital Markets desk conducted an overlap and risk characteristics analysis of the existing bond portfolio versus SPHY. Because SPHY is indexed to the ICE BofA US High Yield Index, its holdings were a close match to the existing portfolio, which helped further streamline the transition process.

Within one trading day, the AP bought all 900 bonds from the portfolio, converted those securities into ETF shares via creation in the primary market, and then sold the shares back to the allocator using the NAV benchmark for both the bond leg and the ETF leg of the trade. The process ensured that the allocator maintained the same high yield corporates exposure as it had before, but in a more liquid format that could be held as an ETF or later be converted back to bonds or sold easily into the ETF market.

State Street and the AP worked with the end client to complete the entire transaction at a cost of less than 1 bp. The client achieved such low pricing as a result of the creation/redemption mechanism and strong support from the AP and the robust broker/dealer support that exists for SPHY

Outcome

Using an ETF for transition management allowed the investor to achieve its investment priority—switching high yield bond managers—while maintaining market exposure, saving money, improving liquidity, and realizing operating efficiencies:

The ETF solution saved more than $700,000 thanks to the low cost of the conversion compared to the trading costs the new fund manager had quoted.
The allocator enhanced its liquidity by replacing 900 bonds with shares of a single ETF. The allocator could then raise money as needed to fund the purchase of bonds for its new high yield portfolio by simply selling the necessary number of ETF shares.
The ETF placeholder ensured that the allocator would maintain full exposure to the high yield bond market and its desired allocation to that sector while the new manager assembled a custom portfolio.
By holding an ETF instead of individual bonds, the allocator outsourced responsibility for corporate actions and monthly rebalancing to State Street’s ETF portfolio managers. As a result, the investor’s team would not be responsible for monitoring and managing actions such as tenders, partial calls, or the new issue calendar.

Disclosure

Important Risk Information

For institutional/professional investors use only.

This material is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status, risk tolerance or investment horizon. The case study presented is for illustrative purposes only, is based on a specific client situation, and is not intended to represent the experience of any other investor. There is no guarantee that similar results can be achieved.

The transaction outcomes described, including estimated cost savings, execution timing, liquidity benefits and operational efficiencies, were influenced by market conditions, portfolio composition, security overlap, liquidity, transaction timing, counterparty participation and other factors. Any cost estimates or savings comparisons are based on the specific circumstances described and may include assumptions provided at the time of the transaction. Actual results will vary and may be materially different.

Investing involves risk, including the risk of loss of principal.

Investing in high yield fixed income securities, otherwise known as “junk bonds,” is considered speculative and involves greater risk of loss of principal and interest than investing in investment grade fixed income securities. Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk, issuer default risk, issuer credit risk, liquidity risk and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below net asset value. While shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress. Brokerage commissions and ETF expenses will reduce returns. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.

The State Street® SPDR® Portfolio High Yield Bond ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the ICE BofA US High Yield Index. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. It is not possible to invest directly in an index. Any references to an index are for comparative purposes only.

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Market Risk: The Fund's investments are subject to changes in general economic conditions, general market fluctuations, and the risks inherent in investment in securities markets. Investment markets can be volatile, and prices of investments can change substantially due to various factors, including, but not limited to, economic growth or recession, changes in interest rates, inflation, changes in the actual or perceived creditworthiness of issuers, and general market liquidity. The Fund is subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies and markets. Local, regional, or global events such as war, military conflicts, acts of terrorism, trade policy changes or disputes, the threat or actual imposition of tariffs, natural disasters, the spread of infectious illness or other public health issues, or other events could have a significant impact on the Fund and its investments.

The Fund is classified as “diversified” under the Investment Company Act of 1940, as amended (the “1940 Act”); however, the Fund may become “non-diversified,” as defined under the 1940 Act, solely as a result of tracking the Index (e.g., changes in weightings of one or more component securities). When the Fund is non-diversified, it may invest a relatively high percentage of its assets in a limited number of issuers.

Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.

Source: ICE BofA, used with permission. ICE BofA does not guarantee the suitability, quality, accuracy, timeliness and/or completeness of the ICE BofA US High Yield Index or any data included therein, and does not sponsor, endorse, sell or promote State Street Investment Management or its products or services. There can be no assurance that a liquid market will be maintained for ETF shares.

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“ICE Data” and the “ICE BofA US High Yield Index” (the “Index”) are trademarks of Ice Data Indices, LLC or its affiliates, and have been licensed for use by SSGA. ICE Data has not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product, nor makes any representation or warranty, express or implied, to the owners of the licensee’s products or any member of the public regarding the licensee’s products or the advisability of investing in the licensees products, particularly the ability of the Index to track performance of any market or strategy. ICE DATA DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND ICE DATA SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, UNAVAILABILITY, OR INTERRUPTIONS THEREIN. "ICE Data" and the "ICE BofA US High Yield Index" (the "Index") are trademarks of Ice Data Indices, LLC or its affiliates, and have been licensed for use by SSGA. ICE Data has not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product, nor makes any representation or warranty, express or implied, to the owners of the licensee’s products or any member of the public regarding the licensee’s products or the advisability of investing in the licensees products, particularly the ability of the Index to track performance of any market or strategy. ICE DATA DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND ICE DATA SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, UNAVAILABILITY, OR INTERRUPTIONS THEREIN.

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