SPDR
S&P Bank ETF
MANAGEMENT’S
DISCUSSION OF FUND PERFORMANCE (UNAUDITED)
The
SPDR S&P Bank 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 national money
centers and leading regional banks. The Fund’s benchmark is the S&P Banks
Select Industry Index (the “Index”).
For
the 12-month period ended June 30, 2022 (the “Reporting Period”), the total
return for the Fund was –12.36%, and the Index was –12.01%. 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/cumulative effect of security misweights contributed to the difference
between the Fund’s performance and that of the Index.
Bank
stocks performed well over the final two quarters of 2021 driven by improvements
in the U.S. economy and with the improving job market and an injection of
capital through infrastructure spending. During the final 2 quarters of 2021,
the S&P Bank Select Industry Index returned 7.8%. However, the 6 months of
2022, brought the index into negative territory as the S&P Bank Select
Industry Index returned –15.5% for this six month period. While
higher interest rates generally favor bank earnings, much of this negative
performance was driven by the effects of higher inflation and the fears of a
looming recession.
In
Q3 2021, in the U.S., the economic growth remained strong during the quarter as
the manufacturing and services sector contributed towards the economic progress.
The Job market improved with approximately 850,000 943,000 jobs being added in
July which are the largest additions since August 2020. Sectors like travel and
tourism that were impacted by reopening had a strong contribution during the
quarter. The consumer price index (CPI) stayed at the decade highs of 5.4% year
over year. During this quarter, the S&P Banks Select Industry Index returned
3.7%.
During
the 4th quarter of 2021, U.S. President Joe Biden made progress on his
infrastructure spending proposals by signing the long-awaited Infrastructure
Investment and Jobs Act, which is a US$1.2 trillion bipartisan infrastructure
bill. The bill includes US$550 billion of additional spending in order to
upgrade roads, bridges and railways and deploy electric vehicle charging
stations across the U.S.. With the announcement of a sizeable injection of
capital into the U.S. markets, the S&P Banks Select Industry Index returned
3.9% for the quarter.
For
the 1st quarter of 2022, concerns over the Russia-Ukraine War and tighter
monetary policy negatively affected U.S. equity markets during the quarter. The
U.S. consumer sentiment was hit due to higher prices, as inflation rose to 7.9%,
reaching a 40-year high. The Federal Reserve’s (“the Fed”) announced its first
rate hike since 2018, raising the target rate by 0.25%, and clarified that
further increases would be appropriate. On the positive side, the U.S. labor
market remained robust, with the February jobs report coming in much better than
expected and wage growth increasing by 5.1% year-over-year. Total nonfarm
payrolls surpassed consensus forecasts, and the unemployment rate dropped to
3.8%, despite the labor force participation rate moving up to 62.3%. Earnings
growth for U.S. companies stood at 30% year-over-year, beating expectations.
However, labor markets couldn’t help the S&P Banks Select Industry Index and
it dropped –3.4% for the quarter.
In
the U.S., equities declined over the 2nd quarter with the S&P Banks Select
Industry Index down –15.5%. Consumer sentiment dropped sharply
despite lower levels of unemployment and stronger wage growth over the quarter.
The Fed indicated its commitment toward bringing inflation under control by
raising interest rates further. However, as an aftereffect, unemployment rates
were also likely to rise, which was an area of concern for market
participants.
Signs
of higher interest rates weighing on economic activity could be observed from
40% higher house prices compared with the start of 2020. Economic data also
confirmed a decline in the number of home sales.
The
Fund did not invest in derivatives during the Reporting Period.
On
an individual security level, the top positive contributors to the Fund’s
performance during the Reporting Period were First Horizon Corp, CVB Financial,
and People’s United Financial. The top negative contributors to the Fund’s
performance during the Reporting Period were Rocket Companies Inc, Live Oak
Bancshares, and Silver Gate Capital Corp.
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.
