Duration: 5:22
Level: Intermediate

This lesson will discuss:
• International Equities: Trading Hours
• Fixed Income ETFs: Premium/Discount
• Fixed Income ETFs: Matrix Pricing
• Fixed Income ETFs: Wrapper Benefits

Contributed By: State Street Global Advisors

Study Notes:

International Equities: Trading Hours

Asset Class Specific Considerations

International Equity:
Asynchronous Trading Hours

  • ETF iNAV typically reflects local market closing prices of underlying constituents adjusted for currency impact.
  • When markets for underlying securities are closed, the ETF price may deviate from the ETF iNAV calculation as investors react to new information.
  • Availability of hedging instrument: The Euro Stoxx 50 Futures contract is a better reference vehicle than ETF iNAV when Europe is closed.

Fixed Income ETFs: Premium/Discount

Premium or Discount: The price of the ETF relative to the Net Asset Value (NAV) of the underlying basket can be a catalyst for the create/redeem process

Premiums or Discount: These differences may also represent price discovery periods as the ETF’s continuous pricing offers transparency to stale underlying pricing or differences in market structure (i.e., 3pm versus 4 pm close).

Fixed Income ETFs: Matrix Pricing

When quotes are not available, matrix pricing is a commonly used method to price a bond.

Example: Value Bond B

Fixed Income ETFs: Wrapper Benefits

As single bond trading has become more constrained, the alternate route of sourcing bond liquidity through ETF trading has grown.

Transaction Cost Savings: Bid-ask spreads for institutional size ETF trades have historically been significantly lower than indicated spreads for underlying fixed income securities*

Centralized Liquidity: ETF trading on exchange provides a consolidated venue of observable liquidity.

Efficiency: The ETF provides implementation flexibility with easier trading relative to buying individual bonds in the OTC market.


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ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns.

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.

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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.

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Definition:

Arbitrage: the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.

Fund Objectives:
SPY: The investment seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index (the “Portfolio”), with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index.

VOO: The investment seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the Standard & Poor’s 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

IVV: The investment seeks to track the investment results of the S&P 500 (the “underlying index”), which measures the performance of the large-capitalization sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index.

The funds presented herein have different investment objectives, costs and expenses. Each fund is managed by a different investment firm, and the performance of each fund will necessarily depend on the ability of their respective managers to select portfolio investments. These differences, among others, may result in significant disparity in the funds’ portfolio assets and performance. For further information on the funds, please review their respective prospectuses.

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SSGA Funds Management, Inc. serves as the investment advisor to the SPDR ETFs that are registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. SSGA Funds Management, Inc. is an affiliate of State Street Global Advisors Limited.

Intellectual Property Disclosures:

Standard & Poor’s®, S&P® and SPDR® are registered trademarks of Standard & Poor’s® Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation’s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties  make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.

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Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs.

ALPS Distributors, Inc., member FINRA, is distributor for SPDR® S&P 500®, SPDR® S&P MidCap 400® and SPDR® Dow Jones Industrial Average, all unit investment trusts. ALPS Distributors, Inc. is not affiliated with State Street Global Advisors Funds Distributors, LLC.

Before investing, consider the funds’ investment objectives, risks, charges, and expenses. For SPDR funds, you may obtain a prospectus or summary prospectus containing this and other information by calling 1‐866‐787‐2257 or visiting www.spdrs.com. Please read the prospectus carefully before investing.

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