In the second segment of our series on Exchange Traded Funds we will explore the anatomy of a popular ETF, Consumer Staples Select Sector SPDR Fund (ticker symbol XLP).

According to State Street the Consumer Staples Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P® Consumer Staples Select Sector Index.
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How did XLP come about? The creation process begins when a prospective ETF manager (known as a sponsor) files a plan with the U.S. Securities and Exchange Commission to create an ETF. Once the plan is approved, the sponsor forms an agreement with an authorized participant, generally a market maker, specialist or large institution, who is empowered to create or redeem ETF shares. In some cases, the authorized participant and the sponsor are the same. The authorized participant borrows stock shares, places those shares in a trust and uses them to form ETF creation units (50,000 shares is what’s commonly designated as one creation unit). Then the trust provides shares of the ETF, which are legal claims on the shares held in the trust to the authorized participant. Because this transaction is an in-kind trade, that is, securities are traded for securities, there are no tax implications. Once the authorized participant receives the ETF shares, they are sold to the public on the open market (stock exchange) just like stock shares.

The creation process of an ETF may be confusing but investors are generally interested in the following data of an ETF (using XLP as the sample):

  • What segment or sector does the ETF represent? XLP tracks the consumer staples sector.
  • What are the top holdings of the ETF? As a percentage of all 37 holdings, and at the time of this writing XLP holds 11.43% Proctor & Gamble, 8.97% Coca-Cola, 7.29% Philip Morris, 6.95% CVS Health, 6.33% Wal-Mart, 5.5% Altria Group, 4.79% Walgreens Boots Alliance, 4.65% PepsiCo, 3.93% Mondelez International and 3.7% Costco.
  • What is the past performance of the ETF? As of 08/14/2018 XLP was + 4.92% year-to-date, + 19.60% for the past year, + 15.21% (annualized) for the past three years, + 16.42% (annualized) for the past five years and + 10.72% (annualized) for the past ten years.
  • Where does the ETF trade? XLP trades on the NYSE ARCA Exchange.
  • What is the average volume of the ETF? XLP has an average daily volume (shares traded) of over 7 million shares as of the time of this writiFotolia_77260072_Sng.
  • What is the expense ratio of the ETF? XLP has an expense ratio of 0.15%. The expense of managing the fund reduces the performance by the same amount.
  • Does the ETF pay dividends? As of the time of this writing XLP paid out $1.18 per share annually for a 2.36% yield.
  • For investors who use technical analysis they would look at the chart pattern which shows the historical trading patterns of the ETF. For a stock chart on XLP go to and enter the symbol XLP.
  • A fundamental investor may research the financials of each holding that makes up the ETF.

As in any investment, before investing in an ETF investors should consider the investment objectives, risks, charges and expenses and read the prospectus. If the investor likes the consumer staples sector, instead of buying the 32 stocks that make up the sector they can purchase one ETF, XLP. To add the ETF they would initiate a buy order through a brokerage firm trade platform, account representative or trade desk. As with individual stock, ETF orders can be entered as a market, limit or stop order.

Information including the prospectus, fact sheet, risks, performance and annual report on XLP can be obtained from the State Street Global Advisor’s website:

In our next segment we will explore the vast array of investment choices among Exchange Traded Funds.

Contact us if you would like to discuss your financial goals with a Worth Asset Management Advisor.

Keep in mind that past performance is not indicative of future results. In addition, there may be other Exchange Traded Products that offer exposure to the sectors mentioned and each has their unique perspectives and characteristics. It is important to determine if they are appropriate for your personal portfolio.

Disclosure: Worth Asset Management is a Registered Investment Adviser with the state of Texas. Jim Clark and/or his clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The comments and opinions offered herein are not personalized recommendations to buy, sell or hold securities.

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