We have qualitatively reviewed this strategy and reaffirmed its Above Average People and Below Average Process ratings. SPDR Nuveen Bloomberg Municipal Bond ETF TFI remains a low-risk and relatively low-cost option for municipal bonds. But index requirements leave out portions of the municipal bond market, allowing peers to find an advantage. The following text is from Dec. 20, 2022.

This fund tracks the Bloomberg Municipal Managed Money 1-25 Years Index, which includes AA and AAA rated bonds with one to 25 years remaining until maturity. The key advantage for muni bonds is that interest is not subject to federal income tax. As a result, these bonds typically yield less than comparably rated taxable bonds on a pretax basis. Investors in higher tax brackets benefit the most from owning these securities.

This strategy courts significantly less credit risk relative to category peers, owing to its exclusion of bonds rated below AA, which account for about 52% of the average portfolio in the category. It significantly underweights revenue bonds, including those related to hospitals, housing, retirement homes, and ports, which combine to make up nearly 25% of the average holdings among category peers. The fund fills most of this void by overweighting general-obligation bonds.

This fund excludes bonds subject to the Alternative Minimum Tax. These bonds typically pay a higher yield than other muni bonds because they do not provide the same tax benefit. The average fund in the muni national long Morningstar Category holds approximately 9% of its assets in AMT bonds.
Exclusions alter this strategy’s makeup compared with the average fund in its category. While they may cater to some investor’s tastes, they are not intended to or expected to produce risk-adjusted outperformance over a full market cycle.

The strategy’s best feature is its modest fee. At 0.23%, the fund’s expense ratio is 34 basis points lower than the category average.

Analyst Rating

Legacy exclusions limit this strategy's effectiveness.

Director

Bryan Armour

We have qualitatively reviewed this strategy and reaffirmed its Below Average Process rating. The following text is from Dec. 20, 2022.

The index provides high-quality exposure to the muni market. But legacy exclusions result in a portfolio that is not representative of the opportunity set available to other managers, adding uncompensated risks and warranting a Below Average Process Pillar rating.

Below Average

Process

We have qualitatively reviewed this strategy and reaffirmed its Above Average People rating. The following text is from Dec. 20, 2022.
The strategy is subadvised by Nuveen Investments; its team of managers, analysts, and traders are responsible for the management of State Street Global Advisors’ muni-bond index funds.

The lead portfolio managers are Tim Ryan and newcomer Joel Levy, who have acted in this role since 2007 and 2021, respectively. Nuveen is recognized in the industry for its muni expertise, an area of the fixed-income market that is typically less liquid than other areas of the investment-grade bond market and requires manager skill in index-tracking performance. The team earns an Above Average People Pillar rating.

Key-person risk is not a concern for Nuveen as the lead portfolio managers are supported by a deep team of co-portfolio managers, research analysts, and a centralized trading desk. The firm employs a hybrid trading model in which trades can be executed by the portfolio managers or by the trade desk, but trades in the primary market are handled by the centralized trade desk. This allows the managers to primarily focus on portfolio construction and mitigating index tracking error.

Nuveen defines successful index fund management by how tightly the portfolio performs in line with its benchmark. This keeps its interests in-line with investors. The threshold for acceptable tracking error is established by the Risk Group within State Street Global Advisors, who report through the Sub-Advisory Oversight Committee that independently monitors the funds managed by Nuveen.

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

SPDR Nuveen Bloomberg Municipal Bond ETF

TFI tracks a market-value-weighted index of long-term tax-exempt US municipal bonds.

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