A strong management team and sound investment process underpin SPDR® Portfolio Aggregate Bond ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy merits an Above Average Process Pillar rating.  The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People, Process and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

This portfolio holds fixed-rate, taxable, investment-grade U.S. bonds with at least one year until maturity. Qualifying bonds must have at least $300 million in outstanding face value. The index is market-value-weighted and rebalances each month. This results in a conservative portfolio that limits return and yield potential but also caps risk.

The portfolio's conservative complexion mimics that of the taxable, U.S. investment-grade bond market. U.S. Treasuries account for almost 43% of the portfolio, with agency mortgage-backed securities, and corporate bonds making up 26% and 24% of the portfolio, respectively. These figures differ from the category average, which places greater emphasis on corporates and other securitized fare, at the expense of Treasuries. The fund also excludes high-yield debt. Some peers allocate as much 5% of their portfolios to sub-investment-grade bonds, further accentuating the fund's conservative bend relative to category peers. 

Average effective duration has fluctuated in recent years. As an index fund, the fund is beholden to the issuing activity of bond types prevalent in the portfolio. This means the issuing activity of U.S. Treasuries and agency MBS’ largely determine the makeup of the portfolio. As the Federal Reserve cut rates to zero following the initial coronavirus-driven shock in early 2020, issuance of low-coupon, longer maturity debt surged, and this portfolio collected the bulk of those bonds. This led to higher duration and lower coupons compared with active peers. 

With less credit risk comes less reward, and the fund leaves yield on the table by focusing on U.S. Treasuries and other AAA rated debt. Its average coupon and 12-month yield consistently trail the category average, with average coupon and 12-month yield falling 33 and 20 basis points short of the category norm, respectively, as of February 2023.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Above Average

Process

State Street’s fixed income team is strong compared with others in the industry, resulting in an Above Average People Pillar rating. There are three managers listed on the fund: Michael Przygoda, Joanna Madden, Marc DiCosimo. The team is well equipped, with an average of 10 years of portfolio management experience. Together, they manage a total of three strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

State Street Global Advisors is under new leadership but continues to move along the positive trajectory established by former leaders. SSGA maintains its Above Average Parent Pillar rating.
Cyrus Taraporevala, who oversaw much of SSGA’s recent transformation, retired from the CEO position in December 2022 and passed the baton to his successor, Yie-Hsin Hung. She inherited a business that’s become more disciplined with its fund lineup. Fees have come down, while product development remains focused on fixed-income and sustainability funds, and many of SSGA’s launches have echoed that intention.
The seeds that SSGA planted over the past several years have been bearing fruit. It built out a low-cost series of portfolio building-block ETFs in the U.S. bearing the “SPDR Portfolio” branding. SSGA launched these later than its industry rivals, so they aren’t as large. But they’re competitive, with solid management and low fees, which helped them consistently take in new money over the past several years.
SSGA continued to overhaul its ETF business in Europe with most of its recent fixed-income and sustainability fund launches. Many of these funds track indexes and charge relatively low fees. With operations in the U.S. and Europe standing on a firm foundation, SSGA will put more focus on its Asia-Pacific business—the smallest regional segment of its business.

Parent

SPDR Portfolio Aggregate Bond ETF

SPAB tracks a market value-weighted index of the aggregate USD-denominated investment-grade bond market with at least one year to maturity.

The SPDR Portfolio Aggregate Bond ETF has a high duration and includes treasuries, MBS, and corporate bonds. The Fed is focused on labor market dynamics and improving supply-side data, indicating a shift in focus to the growth mandate. Powell acknowledges the stickiness of inflation and believes there are still supply-side issues that need to be resolved.

SPAB: Fed's Comments Are Dovish But Bearish

SPDR Portfolio Aggregate Bond ETF seeks to track the Bloomberg U.S. Aggregate Bond Index. SPAB's portfolio primarily comprises U.S. Treasuries and Agency MBS bonds, making it sensitive to interest rate changes. SPAB is highly diversified with over 6,000 individual securities, with a concentration in the 7-10-year maturity bucket.

SPAB: An Attractive Aggregate Bond Fund

The June Headline CPI rate came in cool at +0.2%, slightly lower than expected, with the Core CPI rate also at +0.2%, the weakest since February 2021. On a year-on-year basis, Headline CPI was up 3.0%, the lowest annual jump in over two years, while Core CPI Rate registered 4.8%, lower than the 5.0% economist consensus figure. U.S. Real Average Weekly Earnings Y/Y increased by 0.6%, while U.S. Real Average Hourly Earnings jumped from 0.2% to 1.2%.

CPI Cools Off, Stocks And Bonds Rally, SPAB A Buy Amid Strong Real Yields

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