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State Street Launches TIPS and Global Dividend ETFs

Eric Dutram

The ETF world continues to experience massive growth both in terms of assets and total number of funds. Total dollars invested in the U.S. ETF market is now over $1.5 trillion, while the fund lineup is fast approaching 1,500 products.

While a number of new products have hit the market in the past few months, some issuers have begun to get back to basics and round out their lineups in key market areas. This appears to be the strategy for one of the most important players in the ETF world, State Street, as the firm just launched two new funds (read State Street Launches Senior Loan ETF).

The brand new products, which we have highlighted in greater detail below, help State Street in two important areas, global yield and the U.S. TIPS market. Both of these segments remain extremely popular with investors, so either of which could experience a good deal of success by those seeking new options in either of these important corners of the investing world.

SPDR Barclays 1-10 Year TIPS ETF: TIPX

This new ETF looks to follow the Barclays 1-10 Year Government Inflation-linked Bond Index which tracks the 1-10 year inflation protected sector of the United States Treasury market. In order to be included in this benchmark, the securities must be TIPS (Treasury Inflation Protected Securities), and have at least one year remaining to maturity and less than 10 years to maturity on the index rebalancing date.

For those unfamiliar with a TIPS bond, it is worth pointing out that the security guarantees that at least the original investment is paid back at maturity. Additionally, the face value of the bond is adjusted in order to keep up with inflation, protecting investors if the CPI is rising (see Can You Fight Inflation with this Real Return ETF?).

Still, it is worth noting that the increase in the bond’s face value is taxed on a yearly basis, so there could be some issues at tax time in high inflation environments. Furthermore, the lower risk nature of these securities definitely eats into the yield as well, so it may not be a top pick for income-hungry investors, especially if you believe that inflation will remain subdued.

Getting back to the product, the issuance size for bonds included must be greater or equal to $500 million as well, while the bonds must also be capital-indexed and linked to a domestic inflation index. Securities must also be issued by the American government and they need to be denominated in U.S. dollars.

The index currently consists of 22 holdings, with no single bond issuance taking up more than 4% of the total. Top holdings are currently skewed towards the short end of the curve, with a modified option-adjusted duration of 3.41, a figure that helps produce an index average yield to worst of just under 1.0%, though it is important to remember that costs are low at just 0.15% a year.

SPDR S&P Global Dividend ETF: WDIV

This new product tracks the Global Dividend Aristocrats Index, a benchmark that looks to measure the performance of high dividend yield companies in the S&P Global BMI that have followed a managed-dividends policy of increasing or stable dividends for at least ten consecutive years.

This index consists of about 100 companies with a weighted average market cap of just under $30 billion. The index also skews towards value stocks as evidenced by its forward P/E of 12.8 and its P/B ratio of 1.7 (Read 11 Great Dividend ETFs).

Investors should also note that the index is currently showing a dividend yield of 4.7%, suggesting that it is a pretty solid choice for income investors on this front. This is particularly true when considering the modest fees in the product, as the fund looks to charge 0.40% a year in gross expenses.

In terms of individual holdings, no single company makes up more than 2.5% of the benchmark, so the product is quite spread out. From a sector look though, the index is pretty concentrated as financials, utilities, and industrials combine to make up just over three-fifths of the total.

From a national perspective, the ETF is heavily concentrated in developed markets, with North American nations taking the top two spots, followed by the usual suspects in Europe and the Far East (the UK, France, Australia, Japan, and Spain round out the top seven). Some emerging markets—such as South Africa, Thailand, and Russia—do make their way into the benchmark, but their contribution is relatively minor.

How do they fit?

TIPX could be an excellent choice for investors who are fearful of inflation, but still want the safety of bonds. The product also fills a hole in the TIPS ETF lineup, as the other funds currently on the market either focus on the short end (STIP, STPZ, or TDTT and TDTF), or they have a longer focus like LTPZ. Given this, TIPX could see some inflows as a middle ground play (read Retire Early with these 3 Dividend ETFs).

Meanwhile, WDIV could be a good choice for investors seeking high income payouts with a global focus. This space is also crowded though, as funds like SDIV, LVL, and FGD combine to make up roughly $1 billion in AUM, and all target the global dividend market.

Bottom Line

Both TIPX and WDIV look to face severe competition from a number of products already in the market. However, they could find a niche thanks to their specialized targets and relatively cheap expense ratios, especially among cost conscious investors who are fans of State Street products already.

I think that WDIV might have an easier time than its TIPS counterpart though, as the space is slightly less competitive and dividend ETF investing is more in vogue right now. Still, both products could find their way into the mix before long, so investors in either the TIPS or global dividend markets should definitely consider either of these funds for new ways to tap into these important corners of the ETF universe.

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Read the analyst report on TIPX

Read the analyst report on WDIV

Read the analyst report on STPZ

Read the analyst report on TDTT

Read the analyst report on TDTF

Read the analyst report on LTPZ

Read the analyst report on SDIV

Read the analyst report on LVL

Read the analyst report on FGD

Read the analyst report on STIP

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