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What’s In your ETF? Understanding ETF portfolio composition

  • By Fidelity Learning Center
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One of the appeals of Exchange Traded Funds (ETFs) is that they can be highly transparent investment vehicles. This makes it easier for investors to target a particular asset class, geographic region, or sector, without worrying whether the fund manager may be investing in securities outside the fund’s mandate, a phenomenon known as “style drift."

The ETF holdings provided on Fidelity.com provide you with a comprehensive overview of each portfolio’s composition, which may help you make informed investment decisions and compare each ETF’s objective to the characteristics of its underlying holdings.

ETF portfolio composition data

Fidelity provides different levels of data for each ETF that can be traded on Fidelity.com. This data is based on each ETF’s holdings as of the end of the previous trading day.

Daily Basket: Through the daily basket, also known as portfolio composition file (PCF), Fidelity provides a daily list of the securities held by each of the more than 1,500 non-Fidelity-sponsored ETFs that investors can trade though Fidelity’s website, as well as all ETFs sponsored by Fidelity.

This daily file is provided by the National Securities Clearing Corporation (NSCC). NSCC reports, clears, and settles ETFs and their underlying securities through its creation/redemption process. This process allows Authorized Participants (large institutional investors) to create customized portfolios by excluding specific securities in lieu of cash. ETFs can also be created and redeemed against cash (in lieu of securities) to support ETF processing at NSCC.

Full Holdings: In addition to the daily PCF, Fidelity provides a link to the Daily Full Holdings file for Fidelity-sponsored ETFs. Click on each ETF’s Prospectus, Holdings & Reports Link to view the most recent Daily Full Holdings file. The primary difference between the PCF and the Daily Full Holdings file is that the Daily Full Holdings file includes cash-in-lieu items, while the PCF only includes securities cleared through the NSCC. If you are interested in finding out the full holdings of an ETF sponsored by a company other than Fidelity, that information can be found on the ETF sponsor’s own website.

Index Components: If an ETF sponsor does not send their information or clear through the NSCC, then the data provider flags the PCF to indicate that it represents only the securities held by the index that the ETF tracks.

While there are differences between what you may view as an ETF’s holdings at any given time – the Daily Basket, the Daily Full Holdings, and the index components – these differences are usually minor. While there is no guarantee, the differences usually consist of a small fraction of a percentage of holdings in cash or an individual component.

ETF basket and holdings differences

The holdings in an ETF portfolio originate through what are known as “redemption and creation baskets.” Unlike mutual funds, ETFs do not necessarily have to sell individual securities in order to meet shareholder redemption requests. Through a process known as “Create and Redeem,” ETFs can use an Authorized Participant to act as a clearinghouse to facilitate shareholder redemption requests.

ETF shares are created when an Authorized Participant deposits a portfolio of stocks into the fund in exchange for an institutional block of ETF shares (usually 50,000). This is referred to as "in kind" creation because a basket of stocks is exchanged for ETF shares rather than using cash. However, in certain circumstances, some ETFs allow for the creation (and redemption) of ETF shares in cash, rather than through the "in kind" process.

Each ETF’s Portfolio Composition page provides more details on holdings and objectives for each ETF available through Fidelity.com. This includes a comprehensive overview of the characteristics of the ETF’s current holdings as compared to its objectives. For example, is the ETF holding securities with exposure to foreign countries or regions? What percentage is held in small capitalization stocks, a particular sector or industry, or corporate or municipal debt types?

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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.

Exchange traded products (ETPs) are subject to market volatility and the risks of their underlying securities which may include the risks associated with investing in smaller companies, foreign securities, commodities and fixed income investments. Foreign securities are subject to interest rate, currency-exchange rate, economic and political risk all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector are generally subject to greater market volatility as well as the specific risks associated with that sector, region or other focus. ETPs which use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses and tracking error. An ETP may trade at a premium or discount to its Net Asset Value (NAV) (or indicative value in the case of ETNs). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile which is detailed in its prospectus, offering circular or similar material, which should be considered carefully when making investment decisions.

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