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

 The strategy merits an Above Average Process Pillar rating. The strategy’s management team earns an Above Average People 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

Vanguard’s manager employs representative sampling to track the Bloomberg 1-3 Year U.S. Treasury Index, which includes Treasury bonds whose remaining maturities range from one to three years. 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 potential but also caps risk.

Investors in the fund enjoy virtually zero credit risk since it holds Treasuries exclusively. Some category peers reach into the securitized bucket to generate extra return, which can hurt competitors when credit spreads widen but help when they narrow. The typical peer’s stake in securitized assets has fallen in recent months and stood at almost 5% on March 31, 2023.

The fund is also relatively insulated from interest-rate risk given it tracks the short end of the Treasury yield curve. Its average effective duration was 1.89 years at the end of March, about a month less than the typical peer. The difference is relatively small, but it means this strategy should be less affected than most when interest rates rise.

The average peer is beginning to look more and more like this strictly Treasury portfolio. Active managers in the category historically allocated more of their portfolio to the securitized sector or reached further down the yield curve to increase yield and returns. This meant taking on greater credit and interest rate risk than this fund. With short-term Treasuries yielding around 5% as of June 2023, active managers are no longer electing to take those risks, causing the category average to more closely resemble the fund’s portfolio. A similar complexion to the category norm will help this fund translate its low fee into a durable performance advantage.

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

SPDR® Portfolio Short Term Treasury ETF benefits considerably from its team, earning it an Above Average People Pillar rating. There are two managers listed on the fund: Cynthia Moy, Joanna Madden. Experience on the team is abundant, with 12 years of average portfolio management experience. Together, they manage a total of three strategies, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position 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 Short Term Treasury ETF

SPTS tracks a market-value-weighted index of US Treasurys with remaining maturities between 1-3 years.

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Institutional adoption of ETFs continues, which should make all investors happy. In a new report from S&P Dow Jones Indices, the amount of money U.S. and Canadian “asset owners” held in ETFs increased 22% to $56 billion in 2023.

Growing Institutional Adoption of ETFs in 2023

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It generally takes a few years for changes in Federal Reserve rates to fully impact bond fund dividends. Bond funds are still benefitting from prior rate hikes. Perhaps by enough to cancel out any future rate cuts. By my estimations, and under current Fed guidance, most bond funds would only start to see declining dividends in 2025, at the earliest.

Estimating The Impact Of Lower Rates On Bond Fund Dividends

Treasuries have rallied in recent weeks, though fundamentals don't quite justify the move. Importantly, the yield curve remains inverted, which means investors get paid more while risking less at the front end. While the 1-3-year segment is the best of the coupons, it's hard to look past the risk/reward in the bills.

SPTS: Skip Treasury Coupons For The Bills

The Fed has raised interest rates to 5.50% and plans to hold rates higher to bring inflation lower, surpassing the 5.25% peak rate in 2007. The short end of the yield curve is currently presenting a great opportunity for investors to take risk off. Soft landing or hard landing, you will still get paid for holding this position. There is no need to worry about earnings risk, dividend risk, or stock prices.

Buy Short-Term Treasuries To Reduce Risk And Enjoy The Risk-Free Yield

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Today, State Street Global Advisors cut the fees on 10 of its already-rock-bottom-priced “Portfolio” ETFs representing core asset classes. Most notably, the $19.7 billion SPDR Portfolio S&P 500 ETF (SPLG) saw its expense ratio decreased by one-third.

State Street Slashes Fees on Portfolio Suite ETFs

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Vanguard Short-Term Treasury Index Fund ETF Shares invest in short-term fixed-income U.S. Treasury bonds with maturities of 1 to 3 years. Government bond yields climbed in the second quarter of the year, with investors predicting further increases due to persistent signs of economic strength. VGSH stands to benefit from the persistence of the yield inversion curve along with the consistent outperformance of 2-year Treasury yields over 10-year Treasury yields.

VGSH: Now Is The Time To Own Short-Term Treasury Bonds

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Treasuries now offer a 5.5% yield. Many investors are turning to Treasuries for safety.

Why I Stopped Buying Treasuries To Buy REITs Instead

SPTS invests in short-term U.S. treasuries with an average maturity year of 1.93 years. While downside risk is limited, SPTS offers little capital appreciation as it has lower rate sensitivity than longer duration treasury funds.

SPTS: You Should Own Long-Term Treasury Instead

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As Fed rate hike worries grew in February, short-term U.S. treasury bond ETFs amassed huge assets as these bonds have lower interest rate and default risks.

ETF Asset Report of February: Short-Term Bonds Win

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The third month of the year is upon us, and with it comes another strong performance for bonds, with the asset class lording its $4.5 billion in weekly asset flows. That's much more than the only other asset class to take in net flows, the multi-asset class, which added just $27.

Weekly Asset Flows: Bonds Take the Cake

Short-dated U.S. bond ETFs gained investors' love last week as Treasury yields continued their climb for the fourth consecutive week on more interest rate hikes from the Federal Reserve.

Short-Term Bonds Win Investors Love Last Week: 5 Hot ETFs

Home Depot

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Investors were net sellers of fund assets (including those of conventional funds and ETFs) for the third week in four, withdrawing a net $2.1 billion for the Refinitiv Lipper fund flows week. Equity ETFs experienced net outflows for the first week in five, handing back a little more than $3.5 billion for the most recent fund flows week.

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S&P 500 and value ETFs amassed huge assets last week while TIPs and short-term bond ETFs lost assets.

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SPTS is one of a class of short-term bond funds that may be overlooked, through no fault of their own. The way that the ETF industry treats "dividend yield" is OK for certain investment types. For others, it creates what I'd call "needless sticker shock"

SPTS: A Case Of Mistaken Identity, Like Many Of Its Peers

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The deficit spending that supported the economy in 2020 is showing up in hot inflation numbers in 2021. While I think the inflation numbers will get better in 2022, I do not believe they will get back to pre-pandemic levels because of owners' equivalent rents and wage gains in the CPI.

Mind The Bond Market

Inflation expectation is a key metric the Fed watches closely. Housing costs - based on different measures of rents - account for one-third of CPI.

Inflation Expectations Come Unanchored

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U.S. Weekly FundFlows Insight Report: Investors Pump $9.0 Billion Into Equity Funds Amid Rising Expectations Of Market Volatility

News for SPDR Portfolio Short Term Treasury ETF ETF (SPTS)