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At the time of posting this question, the BlackRock ETF XSP is down approximately 1.3% during the period Dec 24 9:30 am - Dec 31 10:30 am, while the actual index is down approximately 0.3% during the same period. BlackRock's ETF IVV, which comprises 98.3% of XSP, and which also tracks the S&P 500, is also only down approximately 0.3% during the same period. Why is this happening now, all of a sudden? Throughout the year XSP tracks the actual index very closely. Thanks.

XSP XSP screenshot from Google ticker search

S&P 500 S&P 500 screenshot from Google ticker search

IVV IVV screenshot from Google ticker search

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XSP began trading ex-dividend of $0.37082 per share on December 30, which is expected to cause the per-unit price to drop by that amount.

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When this type of question pops up, it's usually this time of the quarter :->)

SPY went x-dividend on 12/20

XSP.TO went ex-dividend for 37+ cents on 12/30

While the correlation appears to have broken down, when you add the dividend back in, the correlation is still there. To see it for yourself, figure out the percentage change in the SPY from 12/27 to 12/30 and use that to determine what the correlated XSP close should have been on 12/30. You'll find that it's pretty close to 37 cents higher than it actually was. Why? Share price is reduced by the exact amount of the dividend on the ex-dividend date.

You'll get the 37 cents (times the number of shares that you own) on the Pay Date, either in cash or in shares if you are reinvesting the dividend.

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  • Thanks a lot! I had no idea dividend payouts from ETFs actually lower the share price of the ETF. So, thank you for the info. But also, man that sucks. – forte Dec 31 '19 at 18:16
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    There are two sucks in this. The first is that the majority of people mistakenly believe that a dividend is income. It is not if you consider income to be a positive gain. Though a dividend is taxed as income, it provides zero total return on the ex-div date. The other one is that if received in a non sheltered account, it's taxable which means that you are paying taxes for the privilege of receiving some cash flow in your brokerage account. Pluses are that the dividend lowers cost basis and provides compounding if share price appreciates. If non sheltered, this is much ado about nothing. – Bob Baerker Dec 31 '19 at 18:22
  • "you are paying taxes for the privilege of receiving some cash flow in your brokerage account": yes that does suck. Do the share prices of plain-old shares of a single company (say Coca-Cola Co.) go down when dividends are paid out, or is this unique to ETFs? – forte Jan 1 at 7:05
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    @forte Stocks are the same way; if a stock is trading at $40 and then it pays a dividend of $1, then you can expect it to trade at $39 the following morning. If there were no such expectation, then traders could make easy money by just buying stocks right before the dividend and selling them right after. – Tanner Swett Jan 1 at 7:53
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    Sorry about the typo in my previous comment. "Non sheltered" was incorrect. I meant to write: "If sheltered, this is much ado about nothing." All stocks are marked down by the amount of the dividend on the ex-dividend date. ETFs comprised of stocks behave similarly. – Bob Baerker Jan 1 at 13:48

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