State Street Global Advisors (SSGA), the asset management business behind the SPDR brand of ETFs, has launched two actively managed, sector rotation ETFs on NYSE Arca.
Dan Farley, CIO of State Street Global Advisors’ Investment Solutions Group.
The SPDR SSGA US Sector Rotation ETF (XLSR US) tactically allocates among the GICS-defined sectors of the S&P 500 Index, while the SPDR SSGA Fixed Income Sector Rotation ETF (FISR US) tactically allocates across the global fixed income spectrum.
Both funds are managed by SSGA’s Investment Solutions Group (ISG) which oversees more than $260 billion in assets.
“Sectors have long demonstrated consistent sensitivity to economic and interest rate cycles,” said Dan Farley, CIO of SSGA’s Investment Solutions Group. “Our sector selection models provide a unique opportunity to generate meaningful active performance for clients in varying market conditions.”
US equity sectors
To obtain its exposure, the SPDR SSGA US Sector Rotation ETF invests in SSGA’s own suite of SPDR US Select Sector ETFs which includes funds providing exposure to the communication services, consumer discretionary, consumer staples, energy, financials, healthcare, industrials, materials, real estate, information technology, and utilities sectors.
The strategy will overweight or underweight sectors based on ISG’s sector return forecasts and research which includes a proprietary, quantitative sector selection model.
ISG uses the model results and applies qualitative judgment to construct a portfolio of sector ETFs that seeks to maximize returns while meeting risk targets. The fund’s prospectus notes the ETF will limit concentration in any single sector based on ISG’s risk and diversification constraints.
Rebalancing will typically occur monthly although may occur more or less frequently depending on market conditions.
The fund comes with an expense ratio of 0.70% which includes management fees charged by the underlying SPDR US Select Sector ETFs.
Aggregate fixed income
The SPDR SSGA Fixed Income Sector Rotation ETF is also an ETF-of-ETFs, gaining its exposure by investing in SSGA’s SPDR fixed income sector ETFs.
The fund may invest in ETFs providing exposure to US Treasuries, Treasury Inflation Protected Securities (TIPS), mortgage-backed securities, agency bonds, US corporate bonds, US high yield bonds, international (including emerging markets) government bonds, international corporate bonds, senior loans, floating rate notes, and cash equivalents.
The fund uses a tactical investment strategy based on ISG’s Fixed Income Sector Rotation Model, followed by a fundamental review by the portfolio management team.
The model first incorporates macroeconomic, financial and market data to arrive at a projected return forecast for each fixed income sector. Using these projected return forecasts, the model then allocates sector weightings to construct a portfolio that seeks to maximize expected return and yield.
The portfolio’s final sector allocation is also subject to ISG’s risk and diversification constraints, which limit the amount a sector may represent in the portfolio as well as the portfolio’s duration relative to the Bloomberg Barclays US Aggregate Bond Index.
The ETF comes with an expense ratio of 0.50% which is also inclusive of management costs incurred by investing in the underlying ETFs.
“These two new active ETFs highlight three key qualities of State Street Global Advisors – the power of ISG’s sophisticated tactical asset allocation, the world’s largest and most liquid suite of equity sector ETFs, and our experience in managing over $400 billion in fixed income assets,” said Noel Archard, Global Head of SPDR Product at State Street Global Advisors. “In bringing these attributes to a wider audience through our SPDR ETF family, we are providing clients with alpha-seeking solutions to enhance core portfolios.”