ETF Education Report: CGMS

What this ETF is trying to do

The Capital Group U.S. Multi-Sector Income ETF (ticker: CGMS) is an exchange-traded fund designed to provide income. It trades on the NYSE.

What the numbers show

When looking at an ETF, it is important to know the difference between "price return" and "total return."

• Price Return: This only tracks how much the share price itself has changed.

• Total Return: This includes both the change in share price and any cash distributions (dividends) paid out to investors.

For CGMS, the numbers show different results depending on how you measure them:

• Year-to-Date (YTD): The price return is approximately -4.53%, but the total return is approximately -0.25%.

• One Year: The price return was approximately -4.87%, while the total return was approximately 1.04%.

• Three Years: The price return was approximately 3.45%, while the total return was much higher at approximately 23.85%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was $27.72. The current price is $26.37.

Income and distribution explanation

This ETF focuses on providing cash to investors. The distribution yield is approximately 6.26%. This means the amount of cash paid out is about 6.26% relative to the ETF's price. These distributions usually happen monthly, often on a Friday. Over the last 12 months, there were 12 payouts.

It is important to remember that a high distribution yield does not mean the investor earned that same percentage as total return. You must look at the "total return" figure to see how the investment performed overall.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. Investors often care about this because they want their original investment (the principal) to stay stable while they collect income.

For CGMS, the erosion-risk score is 94, which is labeled as "Stable / sideways." The erosion severity is rated as "good," and there is no severe erosion-risk flag present.

Pros

• The ETF has a history of positive total returns over the one-year and three-year periods.

• It provides a regular monthly distribution yield of approximately 6.26%.

Cons

• The share price has seen a decline recently, as shown by the negative year-to-date and one-year price returns.

Beginner takeaway

When evaluating an ETF like CGMS, don't just look at the dividend yield. While the 6.26% yield provides cash, the share price itself has been moving down recently. Always compare the "price return" to the "total return" to get a full picture of how the fund is performing.