ETF Education Report: CGSM

What this ETF is trying to do

The Capital Group Short Duration Municipal Income ETF (CGSM) is an exchange-traded fund. Based on its name, it focuses on municipal income. This generally means it invests in debt from local governments.

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 CGSM, the numbers show different results depending on which you look at:

• Year-to-Date (YTD): The price return is approximately -2.20%. However, the total return is much closer to zero at approximately -0.12%.

• One Year: The price return was approximately -2.24%, while the total return was positive at approximately 0.64%.

• Three Year: The price return was approximately 3.12%, but the total return was much higher at approximately 12.99%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was $26.35. The current price is $25.76.

Income and distribution explanation

This ETF provides cash distributions to investors. The distribution yield is approximately 2.97%. This means the amount of cash paid out is about 2.97% relative to the current share price. These payments usually happen monthly, with a total of 12 payments over the last year. Most of these payments have been made on Fridays.

It is important to remember that a distribution yield tells you how much cash was paid out, but it is not the same as your total return.

NAV erosion explanation

"NAV erosion" refers to a decline in the Net Asset Value (the actual value of the assets held by the fund). While a falling share price can sometimes look like erosion, they are not always the same thing.

For CGSM, 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 three-year total return has been positive at approximately 12.99%.

• The fund provides regular monthly cash distributions.

• The erosion-risk measurements suggest the fund is currently stable.

Cons

• The share price has seen some declines, such as the year-to-date price return of approximately -2.20%.

• The total return for the year-to-date period is currently negative.

Beginner takeaway

When looking at CGSM, pay close attention to the difference between price return and total return. While the share price may go down, the total return includes the cash distributions you receive, which can change your overall result. Always remember that a high distribution yield does not guarantee that the share price will stay the same.