What this ETF is trying to do

The STATE STREET(R) UTILITIES SELECT SECTOR SPDR(R) PREMIUM INCOME ETF (XLUI) is an exchange-traded fund that focuses on providing income. It is categorized as an "option income" ETF. This means it uses specific strategies to try and generate cash for investors. Most of the fund is held in a single place: the STATE STREET® Utilities Select Sector SPDR® ETF (XLU), which makes up about 98.42% of the portfolio.

What the numbers show

When looking at an ETF, it is important to know the difference between "price return" and "total return."

• Price Return only tracks how much the share price itself has changed.

• Total Return includes both the change in share price and the cash distributions (dividends) paid out.

For XLUI, the numbers show a decline in both areas over the last year:

• One-year price return: Approximately -15.38%. This means the share price dropped by that amount.

• One-year total return: Approximately -2.73%. This shows that even when including the cash paid out, the overall value was down.

• Year-to-date (YTD) price return: Approximately -9.16%.

• Year-to-date (YTD) total return: Approximately -1.22%.

To give you an idea of the price change, the estimated price from roughly one year ago was $25.57, while the current price is $21.64.

Income and distribution explanation

This ETF has a high distribution yield of approximately 15.81%. This number describes the cash distributions relative to the ETF's price. The fund usually pays out money monthly, and it has made 12 payments over the last year.

It is very important to remember that a high distribution yield does not mean you are earning that percentage as your total return. While these payments provide cash income, they do not guarantee that your original investment will stay the same value.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. In this report, the erosion-risk score is 55, which is labeled as "Moderate price erosion." While this is a measurement of risk, it is not a guarantee that the fund's value has collapsed. Investors often watch for erosion because they want to make sure the cash they receive isn't coming at the expense of the fund's actual value.

Pros

• High Distribution Yield: The ETF offers a high percentage of cash distributions (approximately 15.81%).

• Frequent Income: The fund typically pays out distributions on a monthly basis.

Cons

• Price Decline: The share price has seen a significant decline over the last year.

• Negative Total Return: Even after including distributions, the total return for the past year was negative.

• Moderate Erosion Risk: The fund has a moderate erosion-risk score of 55.

Beginner takeaway

High yields can look very attractive, but they can be misleading. When you see a high distribution yield, it is important to look at the total return and the price return to see if the share price is falling. If the share price falls faster than the cash being paid out, the overall value of the investment may still go down.