Are you sure you want to change languages?
The page you are visiting uses a different locale than your saved profile. Do you want to change your locale?
SPDR® DoubleLine® Short Duration Total Return Tactical ETF (STOT) – Q4 2020 Commentary
During the fourth quarter of 2020, the SPDR DoubleLine Short Duration Total Return Tactical ETF (STOT) outperformed the Bloomberg Barclays US Aggregate 1-3 Year Index return of 0.22%. The outperformance was driven by the portfolio’s asset allocation mix.
Performance
The fund benefitted from its exposure to high-yield corporate credit, emerging market debt, and structured product risk sectors. High-yield corporate debt was the best performing sector over the period, driven by continued spread tightening on better-than-expected corporate earnings as the pandemic continues to create bifurcation within the high-yield sector. Emerging market debt was a benefactor of a weakening US dollar and rising commodity prices. Investment-grade corporate bonds continue to see strength from the improved underlying view of fundamental corporate risk since the COVID-19-related tumult. Agency-backed securities (ABS) and commercial mortgage-backed securities (CMBS) benefitted from the announcement of a COVID-19 vaccine that increased investor expectations for a recovery in economic activity. Non-agency residential mortgage-backed securities (RMBS) experienced price increases as market participants continue to expect further improvement in credit fundamentals as anticipated progress materialized. US Treasuries and agency MBS saw relatively weak performance as the Treasury curve steepened surrounding additional fiscal stimulus.
Quarter in Review
The duration of the portfolio decreased by 0.10 years to finish the quarter at 1.4 years. The portfolio’s US Treasury allocation target decreased by 6%. The portfolio increased its non-agency RMBS allocation target by 2% and increased collateralized loan obligations (CLO) by 4%.
Asset Allocation
Security Type |
Fund (%) |
Index (%) |
Agency MBS |
24.5 |
19.2 |
Treasuries |
23.0 |
51.1 |
Investment-Grade Corporates |
16.8 |
17.9 |
Emerging Markets |
7.8 |
0.6 |
Commercial MBS |
6.7 |
1.7 |
High Yield |
5.0 |
0.0 |
Non-Agency MBS |
4.5 |
0.0 |
Asset Backed Securities |
1.5 |
1.3 |
Government Related |
0.0 |
8.3 |
CLO |
3.7 |
0.0 |
Cash |
6.5 |
0.0 |
Total |
100.0 |
100.0 |
Source: DoubleLine, State Street Global Advisors. Allocations are as of December 31, 2020 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
We note that structured product spreads lagged the recovery of corporate spreads during the second half of 2020 and believe this trend will change as the global economy continues to recover and COVID-19 vaccines become more widely available. The Federal Reserve has signaled it will continue its accommodative monetary policy of low rates and quantitative easing to support the US economy, which we believe will foster a constructive environment for risk assets. As the US budget deficit continues to reach new all-time highs, we believe that additional fiscal stimulus from the Democratic-controlled government combined with Federal Reserve purchase support will lead to higher inflation and put upward pressure on the intermediate to long tenors of the US Treasury curve.
Bloomberg Barclays US Aggregate 1–3 Year Index
The Bloomberg Barclays US Aggregate 1–3 Year Index provides a measure of the performance of the US dollar-denominated investment-grade bond market with a remaining maturity of greater than or equal to 1 year and less than 3 years. The index includes investment-grade (must be Baa3/BBB- or higher using the middle rating of Moody’s Investor Service, Inc., Standard & Poor’s, and Fitch Inc.) government bonds, investment-grade corporate bonds, mortgage pass-through securities, commercial mortgage-backed securities and asset-backed securities that are publicly for sale in the United States.
Duration
A commonly used measure, expressed in years, that measures a portfolio’s sensitivity to changes in interest rates.
Emerging Market Fixed Income
International bonds issued by governments or corporations located in emerging market countries that are considered sovereign (issued in something other than local currency).
High Yield
Based on the two main credit rating agencies, high-yield bonds carry a rating below “BBB” from S&P, and below “BAA” from Moody’s. Bonds with ratings at or above these levels are considered investment grade. To compensate for the added risk, yields will typically be higher than investment-grade issues.
Investment-Grade Corporate Credit
A corporate bond with a rating that indicates that it has a relatively low risk of default. Bond rating firms, such as Standard & Poor’s, use different designations consisting of upper- and lower-case letters “A” and “B” to identify a bond’s credit quality rating. “AAA” and “AA” (high credit quality) and “A” and “BBB” (medium credit quality) are considered investment grade.
Mortgage-Backed Securities (MBS)
Pooled securities that are backed by mortgage loans. Agency mortgage-backed securities refer to securities backed by pools of mortgages issued by US government-sponsored enterprises, such as Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC).
Spread
The difference between a security’s yield and the yield on a reference security.
Yield Curve
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year US Treasury debt.
Investing involves risk including the risk of loss of principal.
This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.
The fund’s total annual fund operating expenses are 0.65% and net annual fund operating expenses after fee waiver and/ or reimbursement are 0.55%. SSGA Funds Management, Inc. (“SSGA FM” or “Adviser”) has contractually agreed to waive a portion of its management fee and/or reimburse certain expenses, until October 31, 2020, so that the net annual fund operating expenses, before application of any fees and expenses not paid by the Adviser pursuant to the Investment Advisory Agreement, if any, are limited to 0.55% of the fund’s average daily net assets. The contractual fee waiver and/or reimbursement does not provide for the recoupment by the Adviser of any fees the Adviser previously waived. The Adviser may continue the waiver and/or reimbursement from year to year, but there is no guarantee that the Adviser will do so and after October 31, 2020, the waiver and/or reimbursement may be cancelled or modified at any time. This waiver and/ or reimbursement may not be terminated prior to October 31, 2020 except with the approval of the SSGA Active Trust’s Board of Trustees.
The values of debt securities may decrease as a result of many factors, including, by way of example, general market fluctuations; increases in interest rates; actual or perceived inability or unwillingness of issuers, guarantors or liquidity providers to make scheduled principal or interest payments; illiquidity in debt securities markets; and prepayments of principal, which often must be reinvested in obligations paying interest at lower rates.
Investments in asset backed and mortgage backed securities are subject to prepayment risk which can limit the potential for gain during a declining interest rate environment and increases the potential for loss in a rising interest rate environment. Past performance is not a guarantee of future results.
Actively managed funds do not seek to replicate the performance of a specified index. An actively managed fund may underperform its benchmark. An investment in the fund is not appropriate for all investors and is not intended to be a complete investment program. Investing in the fund involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment.
DoubleLine® is a registered trademark of DoubleLine Capital LP. The advisor, State Street Global Advisors Funds Management, Inc., has retained DoubleLine Capital LP as the sub-advisor. DoubleLine LP and State Street Global Advisors Funds Distributors, LLC are not affiliated.
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays is affiliated with State Street Global Advisors, and neither approves, endorses, reviews or recommends SPDR DoubleLine Short Duration Total Return Tactical ETF. Neither Bloomberg nor Barclays guarantees the timeliness, accurateness or completeness of any data or information relating to Bloomberg Barclays U.S. Aggregate 1-3 Year Index, and neither shall be liable in any way to State Street Global Advisors, investors in SPDR DoubleLine Short Duration Total Return Tactical ETF or other third parties in respect of the use or accuracy of the Bloomberg Barclays U.S. Aggregate 1-3 Year Index or any data included therein.