Understanding the STATE STREET(R) MATERIALS SELECT SECTOR SPDR(R) PREMIUM INCOME ETF (XLBI)

What this ETF is trying to do

The XLBI ETF focuses on the materials sector. Based on its data, it is an "option income" ETF. This means it uses specific financial strategies to try and generate extra cash for investors. Most of its value is held in a single large position: the STATE STREET® MATSELSECTSPDR® ETF (XLB), which makes up 99.94% of the fund.

What the numbers show

It is important to understand that "price return" and "total return" tell different stories.

• Price Return: This measures only the change in the share price. For the past year, the one-year price return was approximately -5.22%. Year-to-date (YTD), the price return is approximately -1.63%.

• Total Return: This includes both the price changes and the cash distributions paid out. Even though the share price went down, the one-year total return was approximately 10.11%. The YTD total return was approximately 7.55%.

To visualize the price change, the estimated price from roughly one year ago was $24.55. The current price is $23.27.

Income and distribution explanation

This ETF is designed to provide regular cash payments. The distribution yield is approximately 15.51%. This represents the amount of cash distributed relative to the ETF's price. These payments usually happen monthly, with 12 payments recorded over the last year.

It is important to remember that a high distribution yield does not mean you earned that same percentage in total return. You must look at the "total return" figure to see how the investment performed overall including those payments.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. StockValueFinder uses an "erosion-risk score" to measure this risk.

XLBI has an erosion score of 75, which is labeled as "mild price erosion." While the share price has declined over the last year, there is no "severe erosion-risk flag" for this ETF.

Pros

• Higher Total Returns: Even when the share price fell, the total return remained positive due to distributions.

• Regular Cash Flow: The fund provides frequent (usually monthly) distributions.

Cons

• Share-Price Decline: The actual price of a share has decreased over the last year and year-to-date.

• Mild Erosion Risk: The fund shows a mild erosion-risk score.

Beginner takeaway

When looking at ETFs like XLBI, don't just look at the distribution yield. A high yield can sometimes hide a falling share price. Always compare the price return (how much the share price moved) with the total return (the actual overall performance including cash payments) to get the full picture.