SSgA Launches Short-Dated Junk ETF

March 15, 2012

SSgA goes back to the well looking to replicate success of JNK with a short-dated junk ETF offering.

State Street Global Advisors, the fund provider behind SPDR ETFs, launched a high-yield ETF focused on short-dated U.S. corporate bonds, a clear attempt to match the success of its nearly $12 billion junk bond fund, JNK.

The SPDR Barclays Capital Short Term High Yield Bond ETF (NYSEArca: SJNK) comes with an expense ratio of 0.40 percent. SJNK will track the performance of the Barclays Capital US High Yield 350 Million Cash Pay 0-5 Yr 2% Capped Index, the company said on its website. The index includes only bonds from industrial, utility and financial companies.

With yields on investment-grade debt relatively low, investors looking for significant returns are wading into the junk bond market. The popularity of the $11.82 billion SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK) and the $14.28 billion iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG) are clear signs that investors are willing to take on risk for more yield.

High-yield securities come with certain risks, most notably that the companies issuing them are at greater risk of default than higher-rated companies. Also, they generally don’t have long track records of earnings or of sales. Further, the secondary market for junk bonds can be markedly less liquid than it is for higher-rated securities.

Like most bond funds, the new fund will use a sampling strategy, as opposed to a replication strategy, meaning it won’t own all of the credits in the index.

Under normal circumstances, it will invest at least 80 percent of its assets in securities comprising the index or in securities that SSgA deems have characteristics identical to those contained within the index.

According to the filing, the quality of the holdings in the fund will be based upon a number of factors, including asset size.

The index, which comprises issues of more than $350 million, excludes certain debt, such as noncorporate bonds, structured notes with embedded swaps, eurobonds, defaulted bonds and zero coupon bonds.


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