SPDR® SSGA Ultra Short Term Bond ETF (ULST) – Q4 2020 Commentary
During the fourth quarter of 2020, ULST outperformed the Bloomberg Barclays US Treasury Bellwether 3-Month Index on both a NAV and market price basis.
Performance During the fourth quarter, ULST outperformed its benchmark largely due to its overweight allocation to investment-grade credit and asset-backed securities (ABS), prime credit cards and autos. In addition, the fund’s allocation to BBB corporate credit contributed to outperformance as the credit curve flattened during the quarter.
The discovery of multiple COVID-19 vaccines, the passage of more fiscal stimulus and continued improvement in economic activity and employment caused credit spreads to tighten during the quarter. For example, Bloomberg Barclays US Floating Rate Notes Index (FRN) spreads tightened by 8 basis points (bps) during the quarter, producing positive price and carry excess returns versus the fund’s benchmark. Bloomberg Barclays US Asset-Backed Securities Floating Rate Note Index spreads tightened by 12 bps during the quarter, while the 1- to 3-year weighted average life component of the index, where ULST tends to focus, tightened by 6 bps, producing positive price and carry excess returns versus the fund’s benchmark. As mentioned, the credit curve flattened during the quarter with BBB FRN spreads tightening 20 bps and 18 bps versus AAA and AA FRNs, respectively.1