Select Sector SPDR Trust N-CSRCertified annual shareholder report (management investment company)

The performance chart of a Fund’s total return at net asset value (“NAV”), the total return based on market price and its benchmark index is provided for comparative purposes only and represents the periods noted. A Fund’s per share NAV is the value of one share of a Fund and is calculated by dividing the value of total assets less total liabilities by the number of shares outstanding. The NAV return is based on the NAV of a Fund and the market return is based on the market price per share of a Fund. The market price used to calculate the market return is determined by using the midpoint between the highest bid and the lowest offer on the exchange on which the shares of a Fund are listed for trading, as of the time that a Fund’s NAV is calculated. NAV and market returns assume that dividends and capital gain distributions have been reinvested in a Fund at NAV. Market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included market returns would be lower.

An index is a statistical measure of a specified financial market or sector. An index does not actually hold a portfolio of securities and therefore does not reflect deductions for fees or expenses. In comparison, a Fund’s performance is negatively impacted by these deductions. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income.

The Communication Services Select Sector Index includes companies that have been identified as Communication Services companies by the Global Industry Classification Standard (GICS^® ), including securities of companies from the following industries: diversified telecommunication services; wireless telecommunication services; media; entertainment; and interactive media & services.

The Consumer Discretionary Select Sector Index seeks to provide an effective representation of the consumer discretionary sector of the S&P 500 Index. The Index includes companies from the following industries: retail (specialty, multiline, internet and direct marketing); hotels, restaurants and leisure; textiles, apparel and luxury goods; household durables; automobiles; auto components; distributors; leisure products; and diversified consumer services.

The Consumer Staples Select Sector Index seeks to provide an effective representation of the consumer staple sector of the S&P 500 Index. The Index includes companies from the following industries: food and staples retailing; household products; food products; beverages; tobacco; and personal products.

The Energy Select Sector Index seeks to provide an effective representation of the energy sector of the S&P 500 Index. The Index includes companies from the following industries: oil, gas and consumable fuels; and energy equipment and services.

The Financials Select Sector Index seeks to provide an effective representation of the financial sector of the S&P 500 Index. The Index includes companies from the following industries: diversified financial services; insurance; banks; capital markets; mortgage real estate investment trusts ("REITs"); consumer finance; and thrifts and mortgage finance.

The Health Care Select Sector Index seeks to provide an effective representation of the health care sector of the S&P 500 Index. The Index includes companies from the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology.

The Industrials Select Sector Index seeks to provide an effective representation of the industrial sector of the S&P 500 Index. The Index includes companies from the following industries: aerospace and defense; industrial conglomerates; marine; transportation infrastructure; machinery; road and rail; air freight and logistics; commercial services and supplies; professional services; electrical equipment; construction and engineering; trading companies and distributors; airlines; and building products.

The Materials Select Sector Index seeks to provide an effective representation of the materials sector of the S&P 500 Index. The Index includes companies from the following industries: chemicals; metals and mining; paper and forest products; containers and packaging; and construction materials.

The Real Estate Select Sector Index seeks to provide an effective representation of the real estate sector of the S&P 500 Index. The Index includes companies from the following industries: real estate management and development and REITs, excluding mortgage REITs.

The Consumer Discretionary Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Consumer Discretionary Select Sector Index. The Fund’s benchmark is the Consumer Discretionary Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 14.08%, and the Index was 14.16%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Cash, security misweights, transaction costs and compounding (the exponential growth of outperformance or underperformance) also contributed to the difference between the Fund’s performance and that of the Index.

The Fund started out the period with negative returns the last quarter of 2022. While the overall S&P 500 Index gained over 8% during this period, Consumer Discretionary was the laggard, underperforming by over 9%. The markets were reacting to the latest U.S. Federal Reserve (the “Fed”) rumors, moving back and forth as investors evaluated various indicators. After four consecutive 75 bps rate increases, the Fed tightened by only 50 bps at December’s meeting. The Fund started out 2023 year strongly with returns over 16% for the first quarter of the calendar year. Employers added more than half a million jobs in January and the U.S. housing markets were showing signs of stabilizing or even rebounding. Consumer’s resiliency was clear as retail sales rose 3% that same month, helping consumer discretionary stocks to even finish January as the top performing sector.

Despite ongoing market volatility, consumer discretionary stocks still performed strongly in the third quarter of the Reporting Period. Higher-income consumers continued to spend on luxury items and middle-income consumers continued to be influenced from internet and social media branding. Travel companies also benefited from continued demand for “revenge travel” bookings post pandemic. In June, the Fed even decided against what would have been an 11th consecutive interest rate increase and went for a hawkish pause. Unfortunately, the final quarter of the Reporting Period resulted in negative returns for the sector once again. A downgrade of the U.S. credit rating combined with record high mortgage interest rates and continued regional bank downgrades had a strong impact on returns. Overall consumer spending continued to fall and consumer confidence declined in September for the second consecutive month.

On an individual security level, the top positive contributors to the Fund’s performance during the Reporting Period were Amazon.com, Booking Holdings Inc, and TJX Companies Inc. The top negative contributors to the Fund’s performance during the Reporting Period were Tesla, Inc., Dollar General Corporation, and Advance Auto Parts.

The Consumer Staples Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Consumer Staples Select Sector Index. The Fund’s benchmark is the Consumer Staples Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 5.84%, and the Index was 5.94%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Fees, expenses and cash drag contributed to the difference between the Fund’s performance and that of the Index.

The prior twelve months were characterized by a risk on market environment with the U.S. securities markets broadly higher for the most part. The Consumer Staples sector did not do as well in this environment posting a modest gain owing in part to its defensive nature. One of the causes was the rapid rise in the Federal Funds rate which negatively impacted this sector as the sector’s dividend yield was now relatively less attractive. Higher interest rates also contributed to rising input costs which led to profitability challenges for a number of the constituents. Concerns also grew during the Reporting Period regarding the increasingly challenged consumer as pandemic related savings were being eroded. Additionally, several constituents indicated revenue challenges associated with higher degrees of shrinkage. Finally, worries persisted regarding the impact of a stronger Dollar on profitability. On a positive side, continued easing of supply chains helped this sector with expectations of further improvements on the input side. In general, the firms that have pricing power and can pass on higher input costs to the end consumers were the best performing stocks within this sector during this Reporting Period.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were Molson Coors Beverage Co., Church & Dwight Co., Mondelez International, Inc.. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were Dollar General Corp., Estee lauder Companies Inc, and Target Corp..

The Energy Select Sector SPDR Fund (the "Fund") seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Energy Select Sector Index. The Fund’s benchmark is the Energy Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 30.31%, and the Index was 30.41%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Cumulative security misweights between the fund and the index and fund expenses contributed to the difference between the Fund’s performance and that of the Index.

The energy sector is coming off strong performance in the previous reporting period and again delivered strong performance this Reporting Period. Most of the performance came during Q4 2022 and Q3 2023 where the quarterly performance produced double digit returns and proved to be the leading sector in the S&P 500 Index. Entering into this Reporting Period, there was much concern around global inflation and with energy prices. With the backdrop of the continued war in Ukraine, there was concern over supply and the resulting energy prices. However, the mild winter in 2022 helped ease concerns and natural gas prices came down in Q4 2022. However, there was volatility around crude oil prices. In Q4 2022 and Q3 2023, West Texas Intermediate crude oil was up 4.9% and 31.7% (highest since Q1 2022) respectively. In Q3 2023, Crude oil prices were supported by OPEC+ production cuts that squeezed global crude supply. Tighter-than-expected crude supplies in the U.S. also weighed on oil prices. The cuts by OPEC, plus additional voluntary cuts by Saudi Arabia and Russia, was expected to reduce global production by 1.3 million barrels a day through the end of the year. All of this having a boosting effect on crude oil prices which helped drive profits for the large oil companies who were able to pass them on to consumers.

On an individual security level, the top positive contributors to the Fund’s performance during the Reporting Period were Exxon Mobil Corporation, Chevron Corporation, and Schlumberger N.V. The top negative contributors to the Fund’s performance during the Reporting Period were Devon Energy Corporation, EQT Corporation, and Kinder Morgan Inc. 

The Financial Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Financial Select Sector Index. The Fund’s benchmark is the Financial Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 11.67%, and the Index was 11.73%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Fees, expenses and cash drag contributed to the difference between the Fund’s performance and that of the Index.

There were a number of factors that contributed to this Fund’s return during the Reporting Period. The combination of declining loan growth and an inverted yield curve raised significant worries regarding potential revenue challenges for the banking segment. Additionally, this sector continued to be impacted by a heightened regulatory environment with a particular focus on ESG and lending standards. Recession concerns continued to resonate in the marketplace bringing with it worries regarding an uptick of bad debt being on balance sheets although by some measures firms and consumers were better positioned relative to other sizable market down turns. The dramatic uptick in the Federal Funds rate led to sizable shifts in deposit bases as customers much more aggressively sought yield and safety. This in turn contributed to the collapse of several regional banks, most notably Signature Bank, SVB Financial Group and First Republic Bank, in the first quarter of 2023. Rising interest rates were not a negative for all constituents as there were expectations that insurance companies would be better positioned in regard to revenue and investment returns.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were Everest group LTD., JP Morgan Chase & Co., and Aflac Inc.. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were Signature Bank, SVB Financial Group, and First Republic Bank.

The Health Care Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Health Care Select Sector Index. The Fund’s benchmark is the Health Care Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 8.10%, and the Index was 8.18%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Fees, expenses and cash drag contributed to the difference between the Fund’s performance and that of the Index.

During the Reporting Period, the medical impact of the COVID-19 pandemic fortunately waned although this positive outcome did negatively impact the profitability of a number of the constituents. Still, the policy and medical responses to the pandemic continued to have a significant impact on many of the constituents of this Fund. This was most notably manifested on the demand side as the medical community works down the backlog of deferred medical procedures. Additionally, market expectations are for a much higher run rate of government spending on healthcare and research than the historical norm. This change was heavily influenced by the pandemic and the responses to the pandemic. Another positive for this sector was a decline in regulatory concerns during the Reporting Period. Also, secular trends such as the continuing increased health care demands associated with the ongoing aging of the American population continue to make a positive contribution to many of this Fund’s constituents. This demographic trend is anticipated to lead to continued strong growth in the medical products, pharmaceuticals and medical services markets. Additionally, the return for many of the constituents of this Fund were helped by the sector’s continued dramatic innovation success as evidenced by a much quicker than anticipated response to the COVID-19 pandemic. This spirit and success at innovation has positively contributed to the Fund. Although, this has been offset during the Reporting Period by ongoing patent expirations. Finally though slower than recent periods, mergers and acquisitions both completed and anticipated contributed to this Fund’s return. Conversely, the Fund, owing to its defensive nature, was incrementally hurt by a “risk on” market environment.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were Zimmer Biomet Holdings, Hologic Inc, and Cigna Group. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were Insulet Corp., Catalent Inc., and ResMed Inc..

The Industrial Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Industrial Select Sector Index. The Fund’s benchmark is the Industrial Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 24.50%, and the Index was 24.58%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Fees and expenses contributed to the difference between the Fund’s performance and that of the Index.

With inflation showing signs of slowing down in the U.S., the Index rallied over the first two months of the Reporting Period (up over 21%), but the momentum came to a premature end in December as investors worried about weakening economic growth amid continued hawkish messaging by central banks. The industrials sector tends to benefit from a stronger economy which can lead to increased demand for capital goods and transportation and like the broad market, has been sensitive to the inflationary environment. The Index showed lackluster performance over the next six months, declining almost 4%, as investor sentiment declined amid evidence of a pullback in consumer spending and increased risk of recession as well as supply chain concerns. The Index gained almost 14% over June and July as the U.S. economy grew at a faster-than-expected pace in the second quarter of 2023, before declining 8% in the following months to end the Reporting Period up about 24.5%.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were General Electric Company, Caterpillar Inc., and Boeing Company. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were Generac Holdings, 3M Company, and L3Harris Technologies Inc..

The Materials Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Materials Select Sector Index. The Fund’s benchmark is the Materials Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 17.97%, and the Index was 18.05%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Cumulative security misweights between the Fund and the Index and Fund expenses contributed to the difference between the Fund’s performance and that of the Index.

Companies in the materials sector are cyclical by nature, and in general respond to the state of the economy. In general, they tend to move in the same direction as broader markets. This materials sector is composed of companies in the Chemicals, Construction Materials, Containers & Packaging, and Metals & Mining.

Over the Reporting Period, the U.S. economy remained resilient despite the backdrop of inflation and the growing concerns of a recession. In the U.S., stocks rose with the S&P 500 Index up over 21% during the Reporting Period. Over the same period, materials sector stocks fell in line with the broader U.S. economy and the Index returned over 18%.

This Reporting Period’s market environment was significantly influenced by the U.S. Federal Reserve (the “Fed”), as its efforts to combat the highest U.S. inflation in nearly 40 years took center stage, as did the immediate downstream effects of these large rate increases and speculation on when and if those rate increases would have to be halted, or even reversed.

The Reporting Period began with markets reacting to the latest Fed rumors, moving back and forth as investors evaluated various indicators. When signs appeared that the global economy was beginning to cool, however, markets counterintuitively began to rise again, fueled by speculation that the Fed would have to roll back its tightening measures. A surging energy sector that was benefitting from higher energy prices also helped. After four consecutive 75 bps rate increases, the Fed tightened by only 50 bps at December’s meeting. However, the Fed reiterated that it would maintain its staunchly hawkish stance, capping some market exuberance but maintaining the market’s gains for the quarter.

As 2023 began, markets moved higher as investors interpreted inflation, GDP and headline unemployment numbers as net positives, despite some weakening corporate earnings. But the sudden collapse of Silicon Valley Bank and the deposit vulnerability it exposed in regional banks—driven by depositors chasing higher yields available in money market funds and the like—significantly rattled investors. Fortunately, when regulatory bailouts appeared to limit bank failures and contain the financial contagion, the markets recovered with surprising strength connected to newfound enthusiasm for tech companies and all things AI-related.

Markets continued to climb after June’s U.S. inflation number came in at only 3%, which was its slowest pace in more than two years and which reinvigorated investors on the idea that a soft landing might indeed be possible. But a downgrade of the United States’ credit rating on August 1st put an end to the euphoria. That, combined with record high mortgage interest rates, additional regional bank downgrades and concerns about the Chinese property market and its impact on China’s overall economy, put newfound fear into investor sentiment.

On an individual security level, the top positive contributors to the Fund’s performance during the Reporting Period were Linde PLC, Freeport-McMoRan, and Air Products and Chemicals. The top negative contributors to the Fund’s performance during the Reporting Period were Albemarle Corp., Mosaic Co., and International Flavors & Fragrances, Inc..

The Real Estate Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Real Estate Select Sector Index. The Fund’s benchmark is the Real Estate Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was –1.81%, and the Index was –1.84%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Fees and expenses and cash drag contributed to the difference between the Fund’s performance and that of the Index.

Real estate was one of the worst performing sectors in the S&P 500 Index over the Reporting Period. The market environment was significantly influenced by the U.S. Federal Reserve, as its efforts to combat the highest U.S. inflation in nearly 40 years took center stage. As real estate is capital intensive, the rising interest rate environment has had a profound impact on the sector. Rising interest rates have an adverse impact on the cost of capital; financing costs increase making it more expensive for REITs to take on new debt and to refinance existing debt obligations.

Telecom Tower REITs was the worst performing sub-industry and declined over 20% over the Reporting Period. American Tower Corp (AMT), a leading independent owner, operator and developer of wireless and broadcast communications real estate, was once the largest constituent in the Index but fell second to the industrial REIT Prologis over the course on the Reporting Period as sentiment for AMT declined. Data center REITs advanced over 25% over the Reporting Period and was the top performing sub-industry. Data center REITs such as Equinix (EQIX) continued to report strong fundamentals despite a challenging macroeconomic environment.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were Equinix, Inc. REIT, Prologis, Inc. REIT and Welltower, Inc. REIT. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were American Tower Corp. REIT, Crown Castle, Inc., and SBA Communications Corp. REIT.

The Technology Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Technology Select Sector Index. The Fund’s benchmark is the Technology Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was 39.34%, and the Index was 39.46%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns. Management fees, cash drag, and cumulative effects of individual security misweights contributed to the difference between the Fund’s performance and that of the Index.

The Fund had positive performance in three of the four quarters of the Reporting Period. Performance in the first, second and third quarters of the Reporting Period were positive. The positive performance was driven by better optimism around AI, inflation numbers, hopes of a halt in interest rate hikes by the U.S. Federal Reserve, positive corporate earnings, stabilization measures by regulators to head off panic in the banking sector and expectations that inflation could moderate without negative impacts to unemployment. Performance in the fourth quarter of the Reporting Period was negative on the prospects of a high interest rate regime persisting.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were Microsoft Corp., Apple Inc. and NVIDIA Corp.. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were PayPal Holdings, Inc., Fidelity National Information Services, Inc., and Enphase Energy, Inc..

The Utilities Select Sector SPDR Fund (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Utilities Select Sector Index. The Fund’s benchmark is the Utilities Select Sector Index (the “Index”).

For the 12-month period ended September 30, 2023 (the “Reporting Period”), the total return for the Fund was –7.02%, and the Index was –7.02%. The Fund and Index returns reflect the reinvestment of dividends and other income. The Fund’s performance reflects the expenses of managing the Fund, including brokerage and advisory expenses. The Index is unmanaged and Index returns do not reflect fees and expenses of any kind, which would have a negative impact on returns.

This was a very challenging market environment during the Reporting Period as evidenced by the Fund declining in three of the four quarters. This Fund’s returns were negatively impacted by a general “risk on” market environment as investors became less enamored with the relative defensive nature of this sector. The prior twelve months have been marked by reduced investor appetite for funds with relatively higher dividend yields such as the Utilities Sector which has historically from a sector perspective had one of the higher dividend yields. A primary driver of this was the dramatic increases during the Reporting Period in the Federal Funds rate which has lessened the attractiveness of the sector’s dividend yield. The rise in interest costs has also raised profitability concerns for many of this sector’s constituents as Utilities capital intensive nature tend to be very sensitive to interest rate changes. The Reporting Period was also marked generally by more mild weather conditions which contributed to demand concerns from an energy usage perspective and the accompanying impact on revenue.

On an individual security level, the top positive contributors to the Fund’s performance on an absolute basis during the Reporting Period were Constellation Energy Corp., PG & E Corp., and Pinnacle West Capital Corp.. The top negative contributors to the Fund’s performance on an absolute basis during the Reporting Period were Dominion Energy, AES Corp., and NextEra Energy, Inc..