We have qualitatively reviewed this strategy and reaffirmed its Above Average Process and People ratings. The following text is from Nov. 2, 2022.

SPDR Portfolio TIPS ETF SPIP provides investors with exposure to the full spectrum of Treasury Inflation-Protected Securities at a reasonably low fee. Despite its cost advantage, there are cheaper alternatives. 

The fund tracks the Bloomberg U.S. Government Inflation-Linked Bond Index, which includes U.S. TIPS with at least one year until maturity. The index weights holdings by their market value, which mitigates transaction costs. But it also means that issuing activity can change the fund's interest-rate risk. Interest-rate risk is the main risk in this portfolio because its holdings are backed by the credit of the U.S. government and protect against inflation.

TIPS offer a direct hedge against inflation because their principal is linked to the Consumer Price Index, which tracks the prices paid by U.S. consumers in urban areas. The value of the TIPS’ principal is adjusted upward when the CPI rises, resulting in higher coupon payments. A TIPS fund will likely outperform a Treasury fund with a similar maturity when inflation exceeds expectations. However, when inflation is lower than expected, a Treasury fund will likely outperform because the market’s expectation for inflation was already baked into its price.

Credit risk is virtually nonexistent as TIPS are backed by the U.S. government, but TIPS are still exposed to interest-rate risk. This fund is exposed to a fair amount of interest-rate risk since this fund spans the entire maturity spectrum beyond 1 year. As of August 2022, its average effective duration was 7.77 years, which is higher than the Morningstar Category average of 6.19 years.

Given that TIPS are a narrow and a homogenous sector of the bond market that is free from credit risk, there is limited potential to outperform or underperform. Therefore, fees are an important factor investors should consider. The fund’s active peers often take on more risk away from the TIPS market to recoup their fees, making it difficult for them to outperform this portfolio. The fund's low 0.12% expense ratio should aid the fund in providing sound category-relative performance.

Analyst Rating

Sensible exposure to TIPS.

Associate Analyst

Mo'ath Almahasneh

We have qualitatively reviewed this strategy and reaffirmed its Above Average Process rating. The following text is from Nov. 2, 2022.

This portfolio replicates the composition of the TIPS market effectively, reaping the benefits of the market’s collective wisdom about the relative pricing of each security.
It earns an Above Average Process Pillar rating.

Above Average

Process

We have qualitatively reviewed this strategy and reaffirmed its Above Average People rating. The following text is from Nov 2, 2022. 

This team earns an Above Average People rating because of its breadth and depth of talent.

The portfolio managers are specialists in their asset classes, and they are supported by a team of traders and a quantitative analyst. They work together to provide tight index tracking.

James Kramer, Cynthia Moy, and Orhan Imer have been listed as the fund’s portfolio managers since 2014, 2016, and 2017, respectively. Moy joined SSGA in 2007, while Kramer has spent his entire career with State Street. Kramer is the head of U.S. fixed-income trading for SSGA. Imer joined the firm in 2017 from Columbia and currently serves as a senior portfolio manager.

Although portfolio managers are not directly supported by a team of analysts, they are specialists in their sectors and are responsible for ensuring that the portfolio's performance replicates its index through a top-down and a bottom-up approach. Top-down analysis is conducted to ensure that key metrics of the fund match the index, while bottom-up analysis is conducted to identify the specific securities that are least costly to trade.

The fixed-income team is split into the Rates team, the Securitized/Mortgages team, and the Corporate Credit team, which is further split between high-yield, investment-grade, and convertibles. This specialization should facilitate effective risk management and low transaction costs. These groups are all supported by a central trading desk.

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 TIPS ETF

SPIP tracks a market-value-weighted index of inflation-protected US Treasurys with a remaining maturity of at least one year.

The SPDR® Portfolio TIPS ETF (SPIP) is sensitive to real rates and won't perform well if rates remain high while inflation falls, especially on longer horizons.

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SPIP is an ETF that focuses on providing investors exposure to U.S. Treasury Inflation-Protected Securities. Since the onset of the bond bear market in late 2021, SPIP has suffered a decline exceeding 20%, resulting in its current trading levels comparable to 2010. The future path of inflation is key in determining the ultimate performance of SPIP. Recent CPI data confirm a noticeable slowdown of inflation, from which SPIP stands to benefit.

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