SSgA Plans Long/Short Inflation ETF

December 08, 2011


State Street Global Advisors, the company behind the SPDR ETFs, filed papers with U.S. regulators to market two fixed-income ETFs: one that would track the breakeven inflation rate in the U.S. through a long/short portfolio, the other a commercial paper fund.

The SPDR Barclays Capital Breakeven Inflation ETF will replicate the Barclays Capital U.S. Breakeven Inflation Aggregate Index and capture the returns of long positions in U.S. Treasury inflation-protected securities (TIPS) while simultaneously holding short positions in corresponding nominal U.S. Treasury bonds.

The long TIPS/short U.S. Treasurys portfolio will allow investors to track breakeven inflation, which is the level of inflation required for TIPS to approximate the performance of U.S. Treasurys with equivalent duration. Breakeven rates of inflation are a measure of the market’s expectations for inflation over a certain period.

ETFs that serve up tools with which to manage inflation have resonated with investors, whose concerns over inflation continue to mount as the U.S. struggles to emerge from the worst economic downturn it has seen since the 1930s. Significant U.S. deficit spending has many on edge about the prospects for inflation ahead.

Funds like the $22 billion iShares Barclays TIPS Fund (NYSEArca: TIP)—currently the U.S. market’s largest fixed-income ETF—have been popular with investors who are looking for ways to protect capital against inflation. SSgA also has a TIPS ETF, the SPDR Barclays Capital TIPS (NYSEArca: IPE), with assets of more than $591 million.

The new fund, which the filing says aims to minimize exposure to real yields by scaling the short position “appropriately” while still capturing inflation-linked returns, would go against the likes of a roster of ProShares ETFs that are also under registration with the Securities and Exchange Commission.

The ProShares funds, while leveraged, are also built around a long TIPS/short Treasurys strategy.

Commercial Paper ETF

The SPDR S&P Commercial Paper Ex-Financials ETF will replicate through sampling an S&P benchmark that tracks the 1-3 month sector of the U.S. nonfinancial commercial paper market in a strategy similar to money market mutual funds.

The index, which screens for issuers with program sizes greater than $2 billion, is weighted on a tiered basis that assigns the most weight to the largest issuer’s program.

“Specifically, commercial paper of issuers with a maximum program size ranging from $5 billion to $15 billion will have twice the weight in the index as that of issuers with a maximum program size ranging from $2 billion to $5 billion,” the company said in the filing. Similarly, those exceeding $15 billion will weigh three times as much as the smallest issuers.

The index rebalances monthly.

No ticker or fees were disclosed in the filing.


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