Insights

How to Save More With Lower Fee Bond ETFs

Whether you seek broad index or targeted exposure, bond ETFs offer diversification across numerous bond issues at a lower cost than their mutual fund peers.

August 1, 2023

US-listed fixed income ETF assets have grown at an annualized rate of about 34% since 2002 to reach $1.29 trillion.¹ What’s driving this significant growth? Easy access to market segments where purchasing individual bonds can be prohibitively expensive. Strong liquidity that supports trading flexibility. And, maybe most importantly, lower fund fees.

Fees for bond ETFs are 60% lower than their mutual fund peers. Bond ETFs’ median net expense ratio is just 0.28% versus 0.70% for mutual funds.²
Active fixed income ETFs’ median net expense ratio is 0.40% versus 0.71% for active mutual fund peers.³

In fact, every SPDR® bond ETF costs less than its mutual fund peer:

Fixed income SPDR ETFs have a median expense ratio of just 0.23% versus mutual funds’ 0.70%.⁴
In some instances, our fixed income ETFs are more than 22x less expensive than comparable mutual funds.⁵

Low-Cost SPDR® Portfolio Fixed Income ETFs

The range of low-cost fixed income SPDR ETFs provides easy exposure to various maturities, credit qualities, sectors, geographies, and currencies — enabling you to easily and cost-efficiently build core bond portfolios.

Build a Low-Cost Core Portfolio

The low-cost core SPDR® Portfolio ETFs™ suite — with over $151 billion in assets — offers:

Median expense ratio of just 4 basis points.⁶
95% lower fees than similar mutual funds.⁷
Median bid-ask spread of just 1 penny.⁸

Customize the Agg to Optimize Your Core

You can use low-cost SPDR Portfolio fixed income ETFs to rebuild the traditional Bloomberg US Aggregate Bond Index by making tactical overweights and underweights, so that you can optimize for specific yield and duration preferences.

Position Along the Yield Curve with Treasurys

The SPDR® Portfolio low-cost Treasury suite provides cost-efficient exposure to nominal US Treasurys across various maturity bands. These exposures offer you the ability to position along the yield curve to tailor portfolio risk and income characteristics.

Target Corporates Across Segmented Maturity Bands

The SPDR® Portfolio corporate bond suite provides low-cost exposure to broad investment grade corporate bonds across segmented maturity bands. These exposures allow you to position along the corporate credit curve to tailor portfolio risk and income characteristics.

Overweight Mortgages in the Core

The SPDR® Portfolio Mortgage Backed Bond ETF (SPMB) is a low-cost ETF that provides exposure to agency mortgage-backed securities of the US investment grade bond market. Mutual fund competitors cost 15x what SPMB does, as shown below.

Include Non-Core Bond Sectors

Ancillary bond segments, such as emerging market debt or senior loans, can provide potential benefits to investors who find mortgages, Treasurys, and corporates to be too narrow to meet their objectives without overconcentrating the portfolio in any one sector.

To seek income and modulate credit risk across a variety of exposures, you can adjust your allocation with SPDR fixed income ETFs.

Consider Municipal Bonds to Improve Tax Efficiency

SPDR’s municipal bond suite is managed by Nuveen, a leading municipal bond investment manager with 125 years of asset management experience.⁹ You can use the SPDR municipal bond suite to seek income without overextending on credit risk, while also improving the tax efficiency of your fixed income allocation — all at a lower cost relative to owning single issues or mutual funds.

Pursue Alpha with Active Fixed Income ETFs

SPDR works in partnership with renowned active fixed income managers like DoubleLine, Blackstone Credit, Nuveen, and Loomis Sayles to offer investors access to a range of skilled active portfolio managers. As shown below, in most cases, SPDR’s active core and non-aggregate bond strategies cost less than comparable mutual funds.

Reducing Your Total Cost of Ownership

Of course, it’s important to consider the total cost of ownership (TCO) — the expense ratio plus trading and holding costs — for any investment.

And in addition to reducing operating costs, which lowers your fees, ETFs’ unique creation and redemption process also works to reduce TCO.

ETFs’ two trading markets provide increased liquidity to support quick reallocation of portfolios or the ability to meet investor redemptions.
ETFs are tax efficient because they tend to distribute fewer capital gains than mutual funds. In 2022, just 3% of fixed income ETFs distributed capital gains compared to 15% of fixed income mutual funds.¹⁰ Taking a broad view, 4% of all ETFs distributed capital gains compared to 44% of mutual funds.¹¹

Invest with a Fixed Income Investing Leader

SPDR bond ETFs are built and powered by the same expertise and resources that have made State Street Global Advisors one of the world’s leading fixed income institutional managers and a pioneer in ETF investing.

Our 26 years of experience managing bonds, and $585 billion in fixed income assets under management,¹² should help investors feel confident looking to us for potential investment solutions, including:

100+ fixed income strategies that provide choice and access to previously unreachable asset markets and strategies.
140+ fixed income professionals across the globe dedicated to conducting research, innovating new fixed income solutions, managing risks and costs, and supporting clients.
A dedicated capital markets team that provides 24-hour coverage across global markets, offering enhanced liquidity and cost-efficient trading strategies.

Against the macro backdrop of elevated market volatility, a more restrictive Federal Reserve, and persistent inflation, we expect strong flows into low-cost, tax-efficient ETFs to continue.

And as the benefits of ETFs are more broadly explored, they should continue to increase in number and variety, creating even more opportunities for today’s investors.

Glossary

Bloomberg US Aggregate Bond Index
A benchmark that provides a measure of the performance of the US dollar-denominated investment-grade bond market. The “Agg” includes investment-grade government bonds, investment-grade corporate bonds, mortgage pass-through securities, commercial mortgage-backed securities, and asset-backed securities that are publicly for sale in the US.

Emerging Markets
Developing countries where the characteristics of mature economies — such as political stability, market liquidity, and accounting transparency — are beginning to manifest. Emerging market investments are generally expected to achieve higher returns than those of developed markets but are also accompanied by greater risk, decreasing their correlation to investments in developed markets.

High Yield
A company or bond that is rated “BB” or lower is known as junk grade or high yield, in which case the probability that the company will repay its issued debt is deemed to be speculative.

Investment-Grade Credit
A fixed-income security, such as a corporate or municipal bond, that has a relatively low risk of default. Bond-rating firms, such as Standard & Poor’s, use different lettered descriptions to identify a bond’s credit quality. In S&P’s system, investment-grade credits include those with “AAA” or “AA” ratings (high credit quality), as well as “A” and “BBB” (medium credit quality). Anything below this “BBB” rating is considered non-investment grade.

Senior Loans
Floating-rate debt issued by corporations and backed by collateral, such as real estate or other assets.

Treasurys
The debt obligations of a national government. Also known as “government securities,” Treasuries are backed by the credit and taxing power of a country, and are thus regarded as having relatively little or no risk of default.

Volatility
The tendency of a market index or security to jump around in price. Volatility is typically expressed as the annualized standard deviation of returns. In modern portfolio theory, securities with higher volatility are generally seen as riskier due to higher potential losses.

Yield
The income produced by an investment, typically calculated as the interest received annually divided by the price of the investment. Yield comes from interest-bearing securities, such as bonds and dividend-paying stocks.

Footnotes

Disclosure

Important Risk Discussion

The views expressed in this material are the views of SPDR Americas Research through the period ended August 1, 2023, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Investing involves risk, including the risk of loss of principal.

Diversification does not ensure a profit or guarantee against loss.

This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

There can be no assurance that a liquid market will be maintained for ETF shares.

The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.

The trademarks and service marks referenced herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Investing in high yield fixed income securities, otherwise known as “junk bonds,” is considered speculative and involves greater risk of loss of principal and interest than investing in investment-grade fixed income securities. These lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.

Actively managed funds do not seek to replicate the performance of a specified index. An actively managed fund may underperform its benchmarks. An investment in the fund is not appropriate for all investors and is not intended to be a complete investment program. Investing in the fund involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment.

Investments in Senior Loans are subject to credit risk and general investment risk. Credit risk refers to the possibility that the borrower of a Senior Loan will be unable and/or unwilling to make timely interest payments and/or repay the principal on its obligation. Default in the payment of interest or principal on a Senior Loan will result in a reduction in the value of the Senior Loan and consequently a reduction in the value of the Portfolio’s investments and a potential decrease in the net asset value (NAV) of the Portfolio. Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest rates. Narrowly focused investments typically exhibit higher volatility and are subject to greater geographic or asset class risk. The fund is subject to credit risk, which refers to the possibility that the debt issuers will not be able to make principal.

State Street Global Advisors Funds Distributors, LLC is the distributor for certain registered products on behalf of the advisor. SSGA Funds Management has retained Blackstone Liquid Credit Strategies LLC, DoubleLine Capital LP and Nuveen Asset Management as the sub-advisor. State Street Global Advisors Funds Distributors, LLC is not affiliated with Blackstone Liquid Credit Strategies LLC, DoubleLine Capital LP or Nuveen Asset Management.

DoubleLine® is a registered trademark of DoubleLine Capital LP.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

More on Fixed Income

View all insights