SPDR SSgA Ultra Short Term Bond ETF’s ULST evolving approach has been successful so far, but further evidence of strong decision-making across different market environments is needed before assigning more conviction. The strategy earns a Morningstar Medalist Rating of Neutral. 
The management team on this strategy is starting to develop a track record together after taking over in 2019, however, the supporting team is smaller compared with peers and has seen some turnover over the past few years. James Palmieri, who leads the firm’s structured credit platform, took the reins here in February 2019 to broaden the fund’s investable universe. Prior to this, the strategy was overseen by the firm’s cash management team. Palmieri was joined by comanager John Mele, who leads the investment-grade credit effort, in June 2019. The two are supported by a smaller but experienced group of investment-grade corporate and structured products analysts at State Street. 
Palmieri has quickly made his mark on this strategy in an effort to deliver a more competitive offering. After averaging just 2% in BBB bonds before his leadership, Palmieri brought the BBB stake to 25% in December 2019; it sat at 32% as of May 2023. This is notable compared with the 16% peer group median BBB stake. Palmieri also introduced commercial mortgage-backed securities, which sat at 4.3% of assets as of May 2023, while decreasing the allocation to asset backed-securities because of a relative value decision as spreads dropped in this sector. The strategy has been fine-tuning its process since these adjustments with additional changes in 2021, including access to Treasury futures to hedge interest-rate risk. 
The strategy’s overall performance from Palmieri’s arrival through May 2023 is solid so far, outperforming more than 70% of peers over this period with better risk-adjusted returns (as measured by Sharpe ratio). It also outperformed in 2022, as a shorter duration stance benefited the strategy. While recent performance has been encouraging, it’s still too soon to draw firm conclusions on how the fund is likely to behave over a full market cycle, and an increase in its credit risk profile could sting in periods of credit stress.

Analyst Rating

Continuing to evolve.

Associate Analyst

Elizabeth Templeton

This strategy’s approach is continuing to evolve. Although changes have been successful so far, further evidence of strong decision-making across different market environments will be needed before assigning more conviction. The strategy earns an Average Process rating.
The current process has been in place since February 2019, when James Palmieri took over this strategy from the firm’s cash management team. Recent adjustments allow for more flexibility in duration positioning and have resulted in increased credit risk, including a strategic increase in the BBB allocation. The strategy must own at least 80% in investment-grade securities and can own up to 10% in high yield, but in practice this high-yield allocation has been less than 4% since 2019. The strategy has been fine-tuning its process since these adjustments with additional changes in 2021, including access to Treasury futures to hedge interest-rate risk.
Each month, the firm’s investment committee meets to discuss investment themes and recommend asset-allocation mixes that fit with its macro views. The portfolio managers use this information to direct the analysts’ work toward credits that look attractive relative to industry peers and leverage bottom-up credit research across corporates and securitized fare. While the analysts review the capital structure, financial health, and event risk of specific companies, the traders scrutinize risk factors that could drive near-term spread volatility for individual credits or sectors.

Average

Process

This strategy is led by experienced managers, but team turnover limits the People rating to Average. James Palmieri, who leads the firm’s structured credit platform, took the reins here in February 2019 to broaden the fund’s investable universe. Prior to this, the strategy was overseen by the firm’s cash management team and had four different managers since its inception in October 2013. Palmieri was joined by comanager John Mele, who leads the investment-grade credit effort, in June 2019. The duo joined State Street in 2016 as a part of their acquisition of GE Asset Management and has managed mandates together since 2011. 
Palmieri and Mele are primarily supported by a smaller but experienced group of investment-grade corporate and structured products analysts at State Street. Seven corporate and six structural credit analysts who average 22 years of experience back this strategy. This group has also seen some turnover in recent years. There have been 10 departures since 2015, including the retirement of two corporate analysts in 2022. In addition, instability in other parts of the organization, including the loss of the head of investment-grade credit in 2019 and a member of the asset-allocation committee in 2022, limits our conviction here.

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.

Above Average

Parent

SPDR SSgA Ultra Short Term Bond ETF

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