State Street Global Advisors has expanded its suite of short-maturity fixed income vehicles with the launch of a sterling corporate bond exchange-traded fund. The SPDR Barclays 0-5 Year Sterling Corporate Bond Ucits ETF, which was listed on the Deutsche Börse Xetra, has been advertised as a “tactical tool” to mitigate the impact of changing market conditions.
As a short-maturity ETF, it offers an opportunity for investors to diversify fixed income allocations in preparation for a rise in interest rates, with an annual fee of 0.2 per cent.
The fund will track the Barclays 0-5 Year Sterling Bond Corporate Bond index and enable investors to participate in the performance of fixed income corporate bonds with a maturity of up to five years.
The index, which is reviewed monthly, consists of investment-grade sterling bonds from companies in the industrial, utilities and finance sectors.
According to SSgA, short-maturity ETFs are used mainly to go either overweight or underweight in specific regions and currencies, and offer the possibility to build more bespoke exposures across the yield curve.
This launch marks the 55th SPDR ETF to be made available in Europe. Other recent short-maturity ETF launches include the SPDR Barclays 0-3 Year US Corporate Bond Ucits ETF, the SPDR Barclays 0-3 Year Euro Corporate Bond Ucits ETF, the SPDR Barclays 1-3 Year US Treasury Bond Ucits ETF and the SPDR 0-5 Year US Treasury Bond Ucits ETF.
SSgA created its first of nearly 200 worldwide ETFs in 2003 and claims to hold nearly $400bn (£240bn) in assets under management.
REACTIONS
Provider view
Eleanor Hope-Bell, head of SPDR UK at SSgA, said: “Higher coupons from corporate bonds helped offset some of the negative impact of rising gilt and treasury yields in 2013. In the current environment, with speculation growing that the interest rates cycle is turning, short-maturity ETFs should be a useful tactical tool, allowing investors to earn yield while remaining flexible. We are delighted to launch the SPDR Barclays 0–5 Year Sterling Corporate Bond Ucits ETF. The SPDR range offers our investors diversified, liquid access to the short end of the government, investment-grade and high-yield corporate yield curves in one trade and allows for flexible cost-efficient ways to adjust duration within a portfolio, by replacing or blending with all-maturity exposures.”
Adviser view
Robert Lockie, investment manager and branch principal for London-based Bloomsbury Financial Planning, said: “Short bonds tend to exhibit less price volatility than longs, which is why we favour them as a dampener to dilute our equity exposure in portfolios according to the degree of risk that an investor is able, willing and needs to take in pursuit of their objectives. Having said that, the research suggests there are times when it is worth taking on the credit risk of corporates, so I would be wary of using an index to determine my exposure to those risks unthinkingly. The problem with funds forced to minimise tracking error is that if the market expects a downgrade, it knows that index investors must sell, and so the price will be marked down before the trade and usually revert afterwards, so the investors get the temporary price hit – market impact cost. This is not an explicit TER-type cost, but it does affect long-term performance.”
Charges
The ETF has an annual fee of 0.2 per cent.
Verdict
If used efficiently, this ETF could present investors with cheap and flexible short-term access to corporate bond markets, which could prove key as interest rates get closer to rising.
