SSgA expands London-listed SPDR range with four new fixed income ETFs

May 23rd, 2012 | By | Category: Fixed Income

SPDR ETFs, the ETF platform of investment giant State Street Global Advisors (SSgA), has listed four new physically-backed fixed income ETFs on the London Stock Exchange (LSE).

SSgA expands London-listed SPDR range with four new fixed income ETFs

SSgA has expanded its London-listed SPDR range with the launch of four new fixed income ETFs tracking gilts and sterling-denominated corporate bonds.

Three of the funds provide access to the UK gilt market, while the fourth provides access to investment-grade sterling-denominated corporate bonds. All four of the funds have highly competitive expense ratios, track key fixed-income benchmarks and are ideally suited as core portfolio building blocks.

The four funds are:

SPDR Barclays Capital 1-5 Year Gilt ETF (GLTS)
SPDR Barclays Capital 15+ Year Gilt ETF (GLTL)
SPDR Barclays Capital UK Gilt ETF (GLTY)
SPDR Barclays Capital Sterling Corporate Bond ETF (UKCO)

The SPDR Barclays Capital 1-5 Year Gilt ETF and the SPDR Barclays Capital 15+ Year Gilt ETF provide targeted exposure to the short- and long-end of the yield curve respectively, while the SPDR Barclays Capital UK Gilt ETF covers the entire maturity spectrum.

As well as for use as core portfolio building blocks, the SPDR Barclays Capital 1-5 Year Gilt ETF and SPDR Barclays Capital 15+ Year Gilt ETF, which have weighted-average maturities of 3.2 and 27.6 years respectively, are likely to prove popular with investors wishing to execute a form of ‘barbell’ strategy and with those wishing to react to changing interest rate and inflation expectations.

A barbell strategy is where the portfolio is heavily weighted to both short-maturity bonds and long-maturity bonds, with little exposure to bonds with maturities in-between these two extremes. In an uncertain and potentially bi-modal world, this strategy can add value.

By contrast, the SPDR Barclays Capital UK Gilt ETF, which holds bonds ranging in maturity from 1-3 years to over 20 years, provides core gilt exposure right across the yield curve. This fund has a weighted-average maturity of 14.6 years.

While the first three funds focus on high-quality UK government bonds, the SPDR Barclays Capital Sterling Corporate Bond ETF provides exposure to high-quality corporates. This fund tracks the Barclays Capital Sterling Corporate Bond Index, an index which contains fixed-rate, investment-grade sterling-denominated bonds.

Inclusion in this index is based on the currency of the issue (i.e. sterling), and not the domicile of the issuer.  Thus, issuers within this fund are not exclusively UK companies. Indeed, though the UK makes up the rump of the fund at 52.9%, other issuers come from countries such as the US (17.49%), Germany (6.38), France (4.9%) and the Netherlands (4.05). The yield to maturity is 5.05%.

Holdings in this index include bonds issued by companies such as Barclays, Wal-Mart, Pfizer, AT&T, Imperial Tobacco, E.On and GlaxoSmithKline, to name just a few. In total, the index has 649 holdings. The fund, however, does not hold this many names, as this would likely prove inefficient. Instead, the fund seeks to replicate the index by following a sampling methodology. Nevertheless, the actual fund is extremely well diversified and holds over 400 physical holdings.

Commenting on the launch, Eleanor Hope-Bell, head of intermediary sales UK at SSgA, said: “Fixed income ETFs provide investors with the tools they need to build fixed income portfolios that not only aim to support their long-term investment goals, but also offer the flexibility and liquidity needed to respond quickly to shifts in the bond markets.”

Ms Hope-Bell added: “The new listings offer investors exposure to core UK fixed income benchmarks using SPDR ETFs. By virtue of trading on exchanges and their subsequent relative pricing transparency and liquidity, our new fixed income SPDR ETFs can be used to adjust portfolios quickly in response to inflation, interest rates and shifts in the economy overall.”

The funds, which come with TERs ranging from 0.15% to 0.20% pa, are dual-listed on the Deutsche Borse and registered for sale in France, Germany, Ireland, Italy and the Netherlands, as well as the United Kingdom.

(Index figures as at 30/04/2012)

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