Insights

Simplify Bond Laddering With Active Target Maturity ETFs

December 5, 2024 7 min read

How can an active bond ladder help you meet your clients’ goals? Allison Bonds Mazza, Head of Intermediary, State Street Global Advisors, sits down with Alison Hennessy, Head of ETF Listings at the Nasdaq, to discuss 14 new SPDR® MyIncome target maturity ETFs — designed to pursue higher yields while managing risk and cash drag.

Want to know more? Get all the details on SPDR® MyIncome ETFs and learn more about the benefits of an active bond ladder.

Video Transcript

Alison Hennessy: Welcome back to another episode of Just for Funds here at Nasdaq MarketSite. I'm Ali Hennessy, head of ETF listings here at the Nasdaq. Today we are joined by Alison Bonds Mazza, who is head of intermediary at State Street Global Advisors. So, Alison, we have a lot to talk about today, so thank you for being here. State Street Global Advisors recently just launched a new suite of actively managed, target maturity ETFs. Can you start off just giving us a little bit of background on this lineup and what you guys recently brought to market?

Allison Bonds Mazza: Sure. Well, it's great to be here, Ali. Thanks for having me. And like you said, we are thrilled to have launched our SPDR® SSGA MyIncome ETFs, which are the first actively managed corporate bond and municipal bond target maturity ETFs in the industry. So, this first wave will have nine corporate bond ETFs and five muni bond ETFs, and we brought these to market really to help investors build more reliable income streams depending on their investment objectives.

And we think that's important given all of the uncertainty with the direction of rates. One of the things that we continue to hear from investors, is that it's really difficult to build out a laddered portfolio of individual bonds. It can be cumbersome. It can be time consuming to find the right bonds at the right price, with the right liquidity, without really wide bid ask spreads.

And so, these MyIncome ETFs provide investors with the experience of owning a bond to maturity. With the diversification of a fund combined with all of the benefits that we know and love about ETFs — the transparency, the liquidity, the cost efficiency, and the tax efficiency. And then layer on to that, the active asset management of one of the largest and most credible asset managers in the world, State Street Global Advisors.¹

Alison Hennessy: Yeah, absolutely. And so, there are other defined maturity products already out there. So, what do you feel like differentiates the SSGA lineup from the others?

Allison Bonds Mazza: I think the big differentiator is the active management. We know that active management can add value within fixed income.

If you look at the bond market, it's approximately three times the size of the equity market.² And due to that fact active managers can add value, whether that's through security selection or credit research or cash management.

For example, in the corporate bond space, an active manager can overweight a more favored sector, and underweight a less favored sector in the muni bond space. They can use their credit research to pay hospital bond A, versus hospital bond B. So, lots of value can be added in fixed income through active management.

But you do need an experienced, credible, active manager. And we are thrilled that State Street Global Advisors is the portfolio manager for these ETFs. State Street Global Advisors is one of the largest asset managers in the world,³ with about 4.7 trillion in assets under management.⁴ Also, one of the leading fixed income managers in the world, with over 600 billion in fixed income assets across 200 different portfolios globally.⁵

And so here, with these MyIncome ETFs, you are getting active management from the same team that runs fixed income portfolios for some of the largest and most sophisticated; pensions, endowments, foundations, sovereign wealth funds, and institutional investors all over the world. And that is now made available to every investor with these MyIncome ETFs.

Alison Hennessy: Yeah. So, it sounds like this this launch is really just a natural extension of what your team is already doing. And so, when you compare these products to some of the index-based target maturity ETFs out there, what do you feel like are some of the, you know, other benefits that the MyIncome suite is bringing to investors?

Allison Bonds Mazza: Well, there's a lot of benefits but I'll call out three for the active management.

The first one is the ability to manage cash. Some of the index solutions out there have a bit of cash drag and an active manager can help minimize that and potentially that could lead to higher yields.

The other benefit is the ability to evolve and change the portfolio based on current market conditions and position the portfolio appropriately. An index fund won't do that. It's static.

And then, you know, I'd call out another benefit. And that is really the ability to maintain diversification. So, some of the other target maturity funds on the market really only screen for maturity year, and as a result, they can be pretty concentrated. And so, if you have active management over the portfolio, they can make sure that the portfolio is diversified by sector or issue, or really to maintain a more balanced fund.

Alison Hennessy: So, Alison, last question for you. A lot of investors think about timing. When should investors consider using these ETFs in their portfolios?

Allison Bonds Mazza: Well Ali, you know, fixed income is always challenging in my opinion. But I think today might be, you know, the most challenging environment that we've seen in a while. Just given the uncertainty around the path and the pace of rate cuts. And so, I think the time is now to consider these funds.

Again, we continue to hear from investors that it is really hard to build out your own ladder of bonds using individual bonds. And so, these MyIncome ETFs can help solve some of that. They provide the experience of owning a bond to maturity with the diversification of a fund, layered on with all of the benefits of ETFs, the cost efficiency, the tax efficiency, the transparency of the liquidity.

And then you have that active management of one of the world's largest and most credible asset managers, with State Street Global Advisors.

I would point out we've actually taken it even a step further to try to do some of the legwork for investors. We've created a new tool called the MyIncome Bond Calculator. It's available on our website and any investor can go there and type in just a handful of inputs; your investment amount, your sector, or whether that's corporates or municipals, and then your maturity range. And it will create a customized and downloadable report, based on your inputs, that gives you the different characteristics of your bespoke bond ladder. Including, the yield, the duration, the credit quality. And so, we're really trying to help investors even more do some of that legwork for them. On our website it's free, SPDRs.com. You can also find a lot of other content there around why you might use target maturity ETFs, and also why you want active management in that space.

Alison Hennessy: Well, that sounds like a great new tool. And, you know, a fantastic new suite of ETFs that we are so excited to have listed here on the Nasdaq. So, Allison, I want to thank you for being here with us in the studio. And thank you so much for watching.

Footnotes

Important Risk Information

Important Risk Information

Investing involves risk including the risk of loss of principal.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

This video is provided for informational purposes only and should not be considered investment advice or an offer for a particular security or securities. The views and opinions expressed by the speaker are those of his or her own as of the date of the recording, and do not necessarily represent the views of State Street or its affiliates. Any such views are subject to change at any time based upon market or other conditions and State Street disclaims any responsibility to update such views.

These views should not be relied on as investment advice, and because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of State Street. Neither State Street nor the speaker can be held responsible for any direct or incidental loss incurred by applying any of the information offered.

Please consult your tax or financial advisor for additional information concerning your specific situation. This video cannot be used for commercial purposes, and should only be used in the specific countries as restrictions exist with some products and services marketed globally.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs’ net asset value. Brokerage commissions and ETF expenses will reduce returns.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Actively managed ETFs do not seek to replicate the performance of a specified index. The Fund is actively managed and may underperform its benchmarks. An investment in the fund is not appropriate for all investors and is not intended to be a complete investment program. Investing in the fund involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment.

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