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 give you 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
Each trading day, ETF issuers must disseminate a portfolio composition file (PCF) which describes the makeup of the creation and redemption basket for the next trading day. This file is a list of specific names and quantities of securities, cash and/or other assets that the fund will accept or pay out in exchange for ETF shares. Often, this file represents a pro-rate slice or a representative sample of assets the ETF holds. These baskets also contain a cash component.
This PCF is provided to 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: A complete list of all underlying assets and quantities held by the fund. This includes cash and/or any securities not included in the PCF.
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.
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. For ETFs sponsored by Fidelity, daily holdings are provided on Fidelity.com. Click the ETF's prospectus and choose Holdings & Reports to view the most recent daily full holdings file. For an ETF sponsored by a company other than Fidelity, holdings are provided as of the most recent month end. 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.
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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 (anywhere from 25,000 to 600,000). 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 circ*mstances, 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?
