What this ETF is trying to do

The STATE STREET(R) CONSUMER DISCRETIONARY SELECT SECTOR SPDR(R) PREMIUM INCOME ETF (XLYI) is an exchange-traded fund focused on the consumer discretionary sector. This sector generally includes companies that sell goods and services that people choose to buy, rather than what they must buy. This specific ETF is categorized as an "option income" fund, which means it uses certain strategies to try to generate extra cash for investors.

What the numbers show

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

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

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

For XLYI, the numbers show a decline in both areas:

• Year-to-Date (YTD): The price return is approximately -11.67%, while the total return is approximately -3.22%.

• One Year: The price return was approximately -15.66%, while the total return was approximately -3.04%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The price was approximately $25.71, and the current price is $21.68.

Income and distribution explanation

This ETF has a high distribution yield of approximately 15.42%. This number describes the cash distributions relative to the ETF's price. The fund usually pays out these distributions monthly, with 12 payments recorded over the last year.

It is very important to remember that a high distribution yield does not mean an investor earned that same percentage as their total return. While these distributions provide cash income, they do not guarantee that the value of your original investment will stay the same.

NAV erosion explanation

"NAV erosion" is a term used to describe a situation where the value of the fund's underlying assets decreases over time. While a falling market price is not the same thing as NAV erosion, we use "erosion scores" to measure risk.

XLYI has an erosion-risk score of 55, which is labeled as "moderate price erosion." This means the fund has shown some level of price deterioration.

Pros

• High Distribution Yield: The fund offers a high percentage of cash distributions (approximately 15.42%).

• 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 when including the cash distributions, the total return for the past year was negative (approximately -3.04%).

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

Beginner takeaway

When you see an ETF with a very high distribution yield, it is important to look at the total return. A fund might pay out a lot of cash, but if the share price is dropping significantly at the same time, the total value of the investment might still go down. Always check both the price return and the total return to get a full picture of how the fund is performing.