State Street Global Advisors launched two new ETFs today on the NYSE Arca that seek to pay a yield higher than most investment grade bonds with less expected risk than junk bonds or debt from emerging markets.
The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR) tracks the BofA Merrill Lynch US Diversified Crossover Corporate Index. According to State Street, “ ‘Crossover’ corporate debt generally means corporate debt rated at levels where the lower end of investment-grade debt and the higher end of high-yield, or junk, debt meet. Qualifying securities must be rated BBB1 through BB3 inclusive — based on an average rating of Moody’s Investors Service, Standard & Poor’s and Fitch — have a fixed income coupon schedule, have at least one year remaining to final maturity, and a minimum amount of outstanding of issuance of $250 million or more. Index constituents are segmented into two groups: those rated between BBB1 and BBB3, inclusive, and those rated between BB1 and BB3, inclusive. Within these two groups, issues are capitalization-weighted and each group is assigned a 50% weight in the overall index – with a 2% cap on each issuer.” As of May 31, the index held approximately 3029 securities. The expense ratio is 0.30%.
“Featuring potentially higher yields than most investment grade bonds and potentially less credit risk than most high yield issues, demand for crossover bonds is growing among financial advisors and investors during this extended low-yield environment,” said James Ross, senior managing director and global head of SPDR Exchange Traded Funds in a written statement. “With the launch of the SPDR BofA Merrill Lynch Crossover Corporate Bond ETF, precise, cost-efficient access to this asset class is within reach for investors seeking exposure that spans both investment grade and high-yield bonds.”
The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (EMCD) tracks the BofA Merrill Lynch Emerging Markets Large Cap Senior Corporate Index, which designed to measure the performance of U.S. dollar-denominated emerging market corporate senior and secured debt publicly issued in the U.S. domestic market and the Eurobond market. To qualify for inclusion, an issuer must have primary risk exposure to a country other than a member of the G10 (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States), a Western European country, or a territory of the U.S.
Individual securities of qualifying issuers must be denominated in U.S. dollars, be senior or secured debt, have at least one year remaining to final maturity, a fixed coupon and $500 million or more in outstanding face value. As of May 31, approximately 454 securities were included in the index. The expense ratio is 0.50%.
“The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF provides investors with an opportunity to tap into the growth potential of emerging markets while minimizing exposure to emerging market currencies,” said Ross. “As fixed-income portfolio diversification becomes a higher priority for investors, interest in emerging market bond exposure is increasing.”