SSgA Launches Two Corporate Bond ETFs
June 19, 2012
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The Crossover Fund
The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF will track the BofA Merrill Lynch US Diversified Crossover Corporate Index. The index is designed to measure the performance of US dollar-denominated “BBB” and “BB” corporate debt publicly issued in the U.S. domestic market.
“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 debt meet, State Street said today in a press release.
Qualifying securities must be rated “BBB1” through “BB3” -- based on an average rating of Moody’s Investors Service Inc., Standard & Poor’s Inc and Fitch, Inc. – and have a fixed-income coupon schedule, have at least one year remaining to final maturity, and a minimum amount of outstanding of $250 million or more of issuance.
Within these two groups, issues are capitalization-weighted and each group is assigned a 50 percent weight in the overall index - with a 2 percent cap on each issuer. As of May 31, 2012, about 3,029 securities were included in the index.
“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,” James Ross, senior managing director and global head of SPDR exchange traded funds at SSgA, said in the press release.
The Emerging Corporate Fund
The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF will track the BofA Merrill Lynch Emerging Markets Large Cap Senior Corporate Index. The index is designed to measure the performance of U.S. dollar-denominated emerging market corporate senior as well as 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, which SSgA defined as Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States. The index also precludes risk exposure to a Western European country, or a territory of the U.S.
“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,” he said.