SPDR® Portfolio High Yield Bond ETF’s Process Pillar rating is Average, but a strong management team still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a 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 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

The ICE Bank of America U.S. High Yield Index, which will underpin this fund, sweeps in U.S. dollar-denominated, sub-investment-grade corporate debt from the public U.S. market. Eligible bonds must have at least $250 million in outstanding value, one year until maturity at the rebalance date, and 1.5 years until maturity at issuance. The index excludes all municipal debt, equity-linked securities, Eurodollar bonds, and contingent capital securities, except for those triggered at the discretion of regulators.

Bonds that meet the criteria are weighted by their market value. That pulls the portfolio toward the heftiest issuers, which may be sensitive to economic conditions and vulnerable to drawdowns.

J.P. Morgan will use an optimizer to track the benchmark. It’s a sensible solution. Rather than invest in thousands of index constituents, a custom-built optimizer constructs a portfolio that mimics the benchmark’s duration, yield, convexity, sector exposure, and other risk dimensions. This should prove to be a cost-efficient way to track the sprawling index.

Sub-investment-grade corporate bonds fill this portfolio. Issued by firms like Ford and Charter Communications—the benchmark’s two heaviest issuers—these bonds offer attractive yield to compensate for the default risk attached to them. Issuers should meet these obligations when markets are smooth, but difficult environments may spell trouble for these bonds given the financial instability of the companies that issue them.

This portfolio will be one of the broadest in the category when it adopts its new benchmark. Its $250 million face value requirement is lower than most index funds, opening the door for an array of bonds spanning various corporate sectors. The index does not cap individual issuer weights, but concentration should not be a concern. Bonds from Ford, the portfolio’s top issuer, only represented about 2% of the index entering 2023.

Excluding investment-grade debt makes the index’s credit profile slightly riskier than most, but it still reflects the shape of the category average. Both favored industrial and consumer cyclical bonds at the end of 2022, when each corporate sector represented about one fifth of the index portfolio. The index and its average peer’s average effective duration hovers around four years, so interest-rate fluctuations shouldn’t drive relative performance. The new version of this fund won’t have the flexibility it once did, but it captures enough of the high-yield bond opportunity set for its low fee to take center stage.

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.

Average

Process

SPDR® Portfolio High Yield Bond ETF's strong team drives the strategy's Above Average People Pillar rating. There are three managers listed on the fund: Michael Brunell, Bradley Sullivan, Kyle Kelly. The team is well equipped, with an average of 13 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. This group has successfully retained management talent, with no departures in the past five years. 

 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.

Above Average

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

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