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Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, treasury yields are also showing a downtrend.
Although the Federal Reserve Chair Janet Yellen stated earlier this month that the U.S. economy was making progress, she remained silent on the timing of the impending interest-rate hike. This coupled with shockingly downbeat job data for the month of May has led to speculations that a June rate hike is in all possibility off the table (read: Yellen Upbeat on Economy: Wining Sector ETFs).
Because of these factors, fixed income bond ETFs have lately gained a lot of popularity as investors continue to search for stable yield in an ultralow rate interest environment.
So, it’s not surprising that State Street Global Advisors has teamed up with Dorsey, Wright & Associates and has launched a fund of funds, which allows investors an opportunity to take advantage of a proprietary signal-driven, momentum-focused technical index methodology for fixed income exposure.
Below, we have highlighted the newly launched fund – SPDR Dorsey Wright Fixed Income Allocation ETF – in greater detail.
DWFI in Focus
The fund tracks the Dorsey Wright Fixed Income Allocation Index, which provides exposure to four SPDR ETFs with highest potential to outperform the other ETFs in the SPDR universe. Each SPDR ETF is selected on the basis of relative strength and the four top-ranked SPDR ETFs are included in the Index. Relative strength is measured through the comparison of price momentum based on historical daily closing prices inclusive of dividends since inception.
The product holds 4 ETFs in its basket – SPDR Barclays International Treasury Bond ETF (BWX - Free Report) , SPDR Barclays Emerging Markets Local Bond ETF (EBND - Free Report) , SPDR Wells Fargo Preferred Stock ETF (PSK - Free Report) and SPDR Nuveen Barclays Municipal Bond ETF (TFI - Free Report) – with approximately one-fourth of the weight each (read: Treasury ETFs in Focus on Flight to Safety).
The fund has an expense ratio of 0.60%. The fund invests in the above mentioned ETFs in slightly different weights than the index, gaining 25.35% exposure to International Treasury, 25.33% exposure to Emerging Markets, 24.63% exposure to Hybrids and 24.56% exposure to Municipal Bonds.
Launched on June 1, 2016, the fund has already amassed $5.1 million in its asset base as per ETF.com. The fund is up 1.6% in the last 5 days.
How Could it Fit in a Portfolio?
With the low-yield environment likely to stay for some time now, investors are looking for stable income with low risk. DWFI provides investors a convenient and cost-effective method to track changes in price, volatility, rates and yield spreads of certain fixed income ETFs through its relative strength methodology. Meanwhile, the fund of funds promises to be liquid and tax-efficient.
However, investors looking for a high-growth vehicle may not be satisfied with this product. Additionally, changes in currency exchange rates may affect the value of the fund’s investment adversely (read: Junk versus Investment Grade Corporate Bond ETFs).
Competition
Being a fund of funds with unique relative strength selection methodology, the ETF does not have any direct competitor. The fund provides investors a new way to play the fixed income market. The product charges moderately high fees from investors annually due to its unique strategy. The fund provides access to several niche spaces of the fixed income space – international treasury, emerging markets, preferred stock and municipal bond.
However, there are quite a few total bond market ETFs which could give some competition to DWFI. Of these, the popular fund, Vanguard Total Bond Market ETF (BND - Free Report) , has a total asset base of $30.7 billion. This fund tracks the Barclays U.S. Aggregate Float Adjusted Index and trades in heavy volume of 2.1 million shares per day and charges 6 bps in annual fees (read: What's Driving the Global ETF Industry?).
Apart from these, SOVB could also face competition from international high yield bond funds – Schwab U.S. Aggregate Bond ETF (SCHZ - Free Report) with an asset base of $2.9 billion, SPDR DoubleLine Total Return Tactical ETF (TOTL - Free Report) with AUM of $2.5 billion and Fidelity Total Bond ETF (FBND - Free Report) with AUM of $138.8 million.
Thus, DWFI is already off to a good start and has a good chance of making a name for itself if it manages to generate returns net of fees greater than the passively managed products in the bond ETF space. The ETF’s plan of diversifying its exposure and its emphasis on liquidity are noteworthy, but its success is a huge factor of the returns it manages to generate.
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New SPDR Fixed Income ETF off to Solid Start
Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, treasury yields are also showing a downtrend.
Although the Federal Reserve Chair Janet Yellen stated earlier this month that the U.S. economy was making progress, she remained silent on the timing of the impending interest-rate hike. This coupled with shockingly downbeat job data for the month of May has led to speculations that a June rate hike is in all possibility off the table (read: Yellen Upbeat on Economy: Wining Sector ETFs).
Because of these factors, fixed income bond ETFs have lately gained a lot of popularity as investors continue to search for stable yield in an ultralow rate interest environment.
So, it’s not surprising that State Street Global Advisors has teamed up with Dorsey, Wright & Associates and has launched a fund of funds, which allows investors an opportunity to take advantage of a proprietary signal-driven, momentum-focused technical index methodology for fixed income exposure.
Below, we have highlighted the newly launched fund – SPDR Dorsey Wright Fixed Income Allocation ETF – in greater detail.
DWFI in Focus
The fund tracks the Dorsey Wright Fixed Income Allocation Index, which provides exposure to four SPDR ETFs with highest potential to outperform the other ETFs in the SPDR universe. Each SPDR ETF is selected on the basis of relative strength and the four top-ranked SPDR ETFs are included in the Index. Relative strength is measured through the comparison of price momentum based on historical daily closing prices inclusive of dividends since inception.
The product holds 4 ETFs in its basket – SPDR Barclays International Treasury Bond ETF (BWX - Free Report) , SPDR Barclays Emerging Markets Local Bond ETF (EBND - Free Report) , SPDR Wells Fargo Preferred Stock ETF (PSK - Free Report) and SPDR Nuveen Barclays Municipal Bond ETF (TFI - Free Report) – with approximately one-fourth of the weight each (read: Treasury ETFs in Focus on Flight to Safety).
The fund has an expense ratio of 0.60%. The fund invests in the above mentioned ETFs in slightly different weights than the index, gaining 25.35% exposure to International Treasury, 25.33% exposure to Emerging Markets, 24.63% exposure to Hybrids and 24.56% exposure to Municipal Bonds.
Launched on June 1, 2016, the fund has already amassed $5.1 million in its asset base as per ETF.com. The fund is up 1.6% in the last 5 days.
How Could it Fit in a Portfolio?
With the low-yield environment likely to stay for some time now, investors are looking for stable income with low risk. DWFI provides investors a convenient and cost-effective method to track changes in price, volatility, rates and yield spreads of certain fixed income ETFs through its relative strength methodology. Meanwhile, the fund of funds promises to be liquid and tax-efficient.
However, investors looking for a high-growth vehicle may not be satisfied with this product. Additionally, changes in currency exchange rates may affect the value of the fund’s investment adversely (read: Junk versus Investment Grade Corporate Bond ETFs).
Competition
Being a fund of funds with unique relative strength selection methodology, the ETF does not have any direct competitor. The fund provides investors a new way to play the fixed income market. The product charges moderately high fees from investors annually due to its unique strategy. The fund provides access to several niche spaces of the fixed income space – international treasury, emerging markets, preferred stock and municipal bond.
However, there are quite a few total bond market ETFs which could give some competition to DWFI. Of these, the popular fund, Vanguard Total Bond Market ETF (BND - Free Report) , has a total asset base of $30.7 billion. This fund tracks the Barclays U.S. Aggregate Float Adjusted Index and trades in heavy volume of 2.1 million shares per day and charges 6 bps in annual fees (read: What's Driving the Global ETF Industry?).
Apart from these, SOVB could also face competition from international high yield bond funds – Schwab U.S. Aggregate Bond ETF (SCHZ - Free Report) with an asset base of $2.9 billion, SPDR DoubleLine Total Return Tactical ETF (TOTL - Free Report) with AUM of $2.5 billion and Fidelity Total Bond ETF (FBND - Free Report) with AUM of $138.8 million.
Thus, DWFI is already off to a good start and has a good chance of making a name for itself if it manages to generate returns net of fees greater than the passively managed products in the bond ETF space. The ETF’s plan of diversifying its exposure and its emphasis on liquidity are noteworthy, but its success is a huge factor of the returns it manages to generate.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>