SPDR
Portfolio S&P 500 High Dividend ETF (SPYD)
MANAGEMENT’S
DISCUSSION OF FUND PERFORMANCE (UNAUDITED)
The
SPDR Portfolio S&P 500 High Dividend ETF (the “Fund”) seeks to provide
investment results that, before fees and expenses, correspond generally to the
total return performance of an index that tracks the performance of publicly
traded issuers that have high dividend yields. The Fund’s benchmark is S&P
500 High Dividend Index (the “Index”).
For
the 12-month period ended June 30, 2023 (the “Reporting Period”), the total
return for the Fund was –2.46%, and the Index was –2.60%. The Fund and Index returns reflect
the reinvestment of dividends and other income. The Fund’s performance reflects
the expenses of managing the Fund, including brokerage and advisory expenses.
The Index is unmanaged and Index returns do not reflect fees and expenses of any
kind, which would have a negative impact on returns. Fees and expenses, cash
drag, and the cumulative effect of security misweights contributed to the
difference between the Fund’s performance and that of the Index.
The
Reporting Period’s market environment was significantly influenced by the
U.S. Federal Reserve (the “Fed”), as its efforts to combat the highest
U.S. inflation in nearly 40 years took center stage, as did the immediate
downstream effects of these large rate increases. Although the performance of
the broader market was strong during the Reporting Period, the performance of
high dividend stocks, which tend to be correlated with value stocks, was
relatively weak. The focus on high dividends captured this underperformance even
further. Although value stocks outperformed in the fourth quarter of 2022, value
stocks lagged significantly behind when markets rebounded in 2023. As a result,
the Fund’s –2.46% return during the Reporting Period was
significantly worse than the S&P 500 Index’s 19.59% return over the same
period. But there were other themes connected to energy and tech that were also
impactful.
The
Reporting Period began with the U.S. in a technical recession following two
consecutive quarters of economic contraction. But this drove investor
speculation that the Fed would have to pivot on its aggressive inflation
fighting regime and temper its rate increases, which in turn drove markets
sharply higher. By mid-August 2022, though, it became clear that the Fed was not
going to pivot off its hawkish approach anytime soon. This, coupled with spiking
energy prices in Europe and other uncertainty surrounding the war in Ukraine,
resulted in a steep sell-off, putting markets into the red for the third quarter
of 2022.
The
tug-of-war between markets and the Fed continued in the December quarter. When
signs appeared that the global economy was beginning to cool, however, markets
counterintuitively began to rise again, fueled by the same speculation that the
Fed would have to roll back its tightening measures. A surging energy sector
that was benefitting from higher energy prices also helped. After four
consecutive 75 bps rate increases, the Fed tightened by only 50 bps in December.
However, the Fed reiterated that it would maintain its staunchly hawkish stance,
capping some market exuberance but maintaining the market’s gains for the
quarter.
As
2023 began, markets continued to move higher as investors interpreted inflation,
GDP and headline unemployment numbers as net positives, despite some weakening
corporate earnings. But the sudden collapse of Silicon Valley Bank and the
deposit vulnerability it exposed in regional banks, driven by depositors chasing
higher yields available in money market funds and the like, significantly
rattled investors. Fortunately, when regulatory bailouts appeared to limit bank
failures and contain the financial contagion, the markets recovered with
surprising strength connected to newfound enthusiasm for tech companies and all
things AI-related.
This
enthusiasm continued into the second quarter, assisted by falling inflation and
a June pause in rate hikes. To a large degree, though, market gains were
dominated by a handful of tech giants. The enthusiasm for AI lifted chip makers
to tremendous gains, but many other large tech names benefitted too. The
performance concentration in the largest tech names that drove markets to ever
higher levels was definitely noted, but concerns about lack of market breadth
did not seem to unsettle investors. A final surge into the end of the Reporting
Period left markets with strong gains for the year-long period.
The
Fund used S&P 500 Index futures in order to equitize cash and receivables
during the Reporting Period, which helped the Fund to track the Index.
On
an individual security level, the top positive contributors to the Fund’s
performance on an absolute basis during the Reporting Period were Cardinal
Health, Inc., Omnicom Group, Inc., and Interpublic Group of Companies, Inc.. The
top negative contributors to the Fund’s performance on an absolute basis during
the Reporting Period were V.F. Corp., Advance Auto Parts, Inc., and Newell
Brands Inc..
The
views expressed above reflect those of the Fund’s portfolio manager only through
the Reporting Period, and do not necessarily represent the views of the Adviser
as a whole. Any such views are subject to change at any time based upon market
or other conditions and the Adviser disclaims any responsibility to update such
views. These views may not be relied on as investment advice and, because
investment decisions for a fund are based on numerous factors, may not be relied
on as an indication of trading intent on behalf of any fund.
