Curve positioning was a slight detractor from performance, whereas rating and sector allocation were positive contributors to performance. Security selection detracted from performance.
For the quarter, MBNE returned 1.91%, underperforming its benchmark by 49 basis points (bps). The Yield Curve steepened during the first quarter as interest rates declined by -0.54% on bonds due in 1 year, by -0.32% on bonds due in 7 to 10 years, by -0.35% on maturities of 14 to 16 years, and by -0.26% on maturities of 23 to 30 years.1 Despite the steepening of the yield curve, the decline in interest rates on all maturities enabled longer maturity ranges to outperform those with shorter maturities during the first quarter. As such, an overweighting to bonds maturing in less than 2 years hurt performance during the quarter, although that was partially offset by an overweighting in bonds maturing in greater than 17 years. Rating allocation was a slight positive contributor with an underweight in triple-A rated bonds driving this. Sector allocation was the largest positive contributor, with an underweight in state general obligation bonds, hospital bonds and an underweight in industrial development bonds driving this performance. Security selection was a detractor from performance, as cash exposure during market rallies hurt performance.
|QTD (%)||YTD (%)||1 Year (%)||3 Year (%)||5 Year (%)||10 Year (%)||Since Inception Feb 03 2021 (%)|
|Bloomberg 3-15 Year Blend (2-17) Municipal Bond Index||2.40||2.40||1.63||0.71||2.18||2.27||-1.79|
Inception date: February 3, 2021. Source: State Street Global Advisors, as of March 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. The gross expense ratio is the fund’s total annual operating expense ratio. It is gross of any fee waivers or expense reimbursements. Performance returns for periods of less than one year are not annualized. 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 calculates. If you trade your shares at another time, your returns may differ. It is not possible to Invest directly in an index. Index performance does not reflect charges and expenses associated with the fund or brokerage commissions associated with buying and selling a fund. Index performance is not meant to represent that of any particular fund.
Gross Expense Ratio: 0.40% Net Expense Ratio: 0.40%
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.
Municipal bond market performance improved during the first quarter, as yields declined in the face of capital market turmoil surrounding the banking sector. Low new issue supply and positive fund flows contributed to performance. Following a strong fourth quarter, municipals have positive momentum while offering an attractive entry point to investors.
The 10-year municipal-to-Treasury yield ratio varied during the quarter, as Treasury volatility did not pass directly through to municipals. The ratio ended the quarter at 65%, just tighter than the 68% year-end rate. This is still relatively rich compared to the long-term historical average of 85%. Conversely, the 30-year ratio was more stable and ended the quarter in line with historical averages at 90%, the same level where it started the year.2
Supply continued its slow pace to start the year, posting the lowest first quarter total since 2018. We saw net positive inflows during the quarter, however largely concentrated in January, and since then the market has been mostly neutral in reported funds. We anticipate as clarity surrounding fed action emerges, issuance should pick up slightly, and investors will come back into the municipal market in much greater force.
During the quarter the portfolio invested cash and utilized a barbell approach, as the very short end of the municipal curve provides significantly better yield levels than further out on the curve, until you reach maturities of 12 years and more. Duration remained relatively in line with the benchmark throughout the quarter, and this was a slight detractor from performance. We anticipate duration to be beneficial overall to performance going forward, however we expect the volatile nature of the first quarter to continue this year as economic data and fed action weigh heavily on the fixed income market.
We see three main factors driving second quarter performance. First, the technical environment is likely to be supportive. Now that we have more clarity from the Fed on the path of interest rates, both investors and issuers may start to move off the sidelines. Muted issuance and strong demand are current tailwinds for the asset class, and inflows for both long duration and high yield have been positive year-to-date.
Second, credit fundamentals remain strong. Municipalities have record levels of tax collections and cash on hand. Credit conditions are solid, even in the face of interest rate volatility. Credit upgrades have been outpacing downgrades by nearly 3 to 1 based on full year 2022 data.3 And as essential service monopolistic providers, municipalities tend to do well in most economic environments.
Finally, long-term valuations are attractive compared to U.S. Treasuries and corporates. In the investment grade space, we like select longer-duration, high-quality bonds that we think are undervalued.
We believe our bottom-up, fundamental credit research process is well-positioned to take advantage of the opportunities we are seeing in the market today.
1 Thomson Reuters Municipal Market Data as of 3/31/23.
2 Bloomberg, Thomson Reuters Municipal Market Data as of 3/31/23
3 Moody’s, Fitch, S&P, March 2023
Basis Point (bps)
A unit of measure for interest rates, investment performance, pricing of investment services and other percentages in finance. One basis point is equal to one-hundredth of 1 percent, or 0.01%..
Investing involves risk including the risk of loss of principal.
The views expressed in this material are the views of Nuveen Asset Management, LLC through the period ended March 31, 2023 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Past performance is not a reliable indicator of future performance.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
The municipal market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a debt security to decrease. A portion of the dividends you receive may be subject to federal, state, or local income tax or may be subject to the federal alternative minimum tax.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.
Non-diversified funds that focus on a relatively small number of issuers tend to be more volatile than diversified funds and the market as a whole.
The fund is actively managed. The sub-adviser’s judgments about the attractiveness, relative value, or potential appreciation of a particular sector, security, commodity or investment strategy may prove to be incorrect, and may cause the fund to incur losses. There can be no assurance that the sub-adviser’s investment techniques and decisions will produce the desired results. While the 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.
State Street Global Advisors Funds Distributors, LLC is the distributor for certain registered products on behalf of the advisor. SSGA Funds Management has retained Nuveen Asset Management. State Street Global Advisors Funds Distributors, LLC is not affiliated with Nuveen Asset Management.