ETF Report: First Trust MLP and Energy Income Fund (FEI)

What this ETF is trying to do

The First Trust MLP and Energy Income Fund, known by its ticker symbol FEI, is an exchange-traded fund (ETF). This type of fund focuses on the energy sector. It specifically looks for income from companies involved in Master Limited Partnerships (MLPs) and other energy businesses.

What the numbers show

As of May 3, 2024, the price of one share of FEI is $9.83. Looking at how the fund has performed, it has seen significant growth recently. The price return over the last year was 32.65%. When you include the money paid out to investors, the total return for the last year was 41.67%.

To see how this looks with a real amount of money, let's use an example. Imagine you invested $10,000 into this fund about a year ago when the estimated price was roughly $7.41 per share. Before any extra payments were made, that $10,000 would have grown to approximately $13,265 based on the one-year price return.

Income and distribution explanation

Some investors look for ETFs that pay them regular cash. This is called a "distribution." FEI has a distribution yield of 5.59%. Over the last 12 months, the fund made 11 distributions. These payments usually happen every month. It is important to remember that a high yield alone can be misleading. A high percentage might look good, but you must also look at whether the share price is staying healthy.

NAV erosion explanation

"NAV erosion" is a term used when the value of the fund's underlying assets drops over time. If an ETF's share price falls from a high price to a much lower price, it can destroy your "principal." Principal is the original money you put in. If the price collapses, you could lose much of your initial investment even if the fund pays out cash.

However, for FEI, no price erosion was detected. The data shows a "good" status for its erosion score, meaning the share price has been growing rather than shrinking.

Pros

• The fund has shown strong total returns over the last year (41.67%) and the last three years (63.46%).

• It provides regular income, usually on a monthly basis.

• The share price has been increasing rather than eroding.

Cons

• The fund is tied to the energy sector, which can be volatile.

• Investors must watch if the high yield comes at the expense of the share price.

Beginner takeaway

Income investors usually prefer ETFs that go sideways (stay at the same price) or move slightly up. They prefer this because they want to keep their original investment safe while collecting cash. If an ETF's price collapses, the income payments might not be enough to make up for the lost money. In the case of FEI, the recent data shows the price has been moving upward along with its distributions.