SSgA adds two new SPDR ETFs tracking EM and crossover corporate bonds

Jun 19th, 2012 | By | Category: Fixed Income

State Street Global Advisors (SSgA) has announced the launch of two new corporate bond ETFs, the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (EMCD) and the SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR). The two new SPDR ETFs, which have been listed on the NYSE Arca, provide investors with an opportunity to access the attractive yield and total return potential of emerging market corporate debt and crossover corporate bonds.

SSgA adds two new SPDR ETFs tracking crossover and EM corporate bonds

Brazil comprises approximately 20% of the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (EMCD).

SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (EMCD)

The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF seeks to track the performance of the BofA Merrill Lynch Emerging Markets Large Cap Senior Corporate Index. This index is designed to measure the performance of dollar-denominated emerging market corporate senior and secured debt publicly issued in the US domestic market and the Eurobond market.

To qualify for inclusion, an issuer must have primary risk exposure to an emerging market country, defined here as a country other than a member of the G10, a Western European country, or a territory of the US. Individual securities of qualifying issuers must be denominated in US dollars, be senior or secured debt, have at least one year remaining to final maturity, a fixed coupon and $500 million or more in outstanding face value.

As of 31 May 2012, approximately 454 securities were included in the index. The top five holdings were Petroleos De Venezuela, Petrobras Intl, Petronas Cap Ltd, Petroleos Mexica and Vale Overseas. On a country basis, Brazil comprised 19.67% of the index, while Russia and Mexico made up 15.17% and 10.95% respectively.

“The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF provides investors with an opportunity to tap into the growth potential of emerging markets while minimising exposure to emerging market currencies,” said James Ross, senior managing director and global head of SPDR ETFs at SSgA. “As fixed-income portfolio diversification becomes a higher priority for investors, interest in emerging market bond exposure is increasing.”

The fund has an expense ratio of 0.50%.

SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR)

The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF seeks to track the performance of the BofA Merrill Lynch US Diversified Crossover Corporate Index. The index is designed to measure the performance of US dollar-denominated BBB and BB corporate debt publicly issued in the US domestic market.

“Crossover” corporate debt generally means corporate debt rated at levels where the lower end of investment-grade debt and the higher end of high-yield debt meet. Qualifying securities must be rated BBB1 through BB3 inclusive (based on an average rating of Moody’s, Standard & Poor’s and Fitch), have a fixed income coupon schedule, have at least one year remaining to final maturity, and a minimum amount of outstanding of $250 million or more of issuance.

Index constituents are segmented into two groups: those rated between BBB1 and BBB3, inclusive, and those rated between BB1 and BB3, inclusive. Within these two groups, issues are capitalisation-weighted and each group is assigned a 50% weight in the overall index – with a 2% cap on each issuer.

As of 31 May 2012, approximately 3029 securities were included in the index. The top five weights were Sprint Nextel, HCA Inc, Icahn Enterprises, Calpine and Corp Dish DBS Corp. On a sector basis, industrials comprised 79.30% of the index, while financials and utilities made up 12.03 and 8.67% respectively.

“Featuring potentially higher yields than most investment grade bonds and potentially less credit risk than most high-yield issues, demand for crossover bonds is growing among financial advisers and investors during this extended low-yield environment,” said Ross. “With the launch of the SPDR BofA Merrill Lynch Crossover Corporate Bond ETF, precise, cost-efficient access to this asset class is within reach for investors seeking exposure that spans both investment grade and high-yield bonds.”

The fund has an expense ratio of 0.30%

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