ETF Education Report: Western Asset Emerging Markets Debt Fund Inc (EMD)

What this ETF is trying to do

The Western Asset Emerging Markets Debt Fund Inc (EMD) is an exchange-traded fund (ETF). Based on its name, this fund focuses on debt from emerging markets.

What the numbers show

When looking at an ETF, it is important to understand two different types of returns: price return and total return.

• Price Return: This measures only the change in the share price. For EMD, the year-to-date (YTD) price return is approximately -8.94%. The one-year price return is approximately -6.29%.

• Total Return: This includes the share price change plus any distributions (cash payments) made to investors. For EMD, the one-year total return is approximately 4.43%, which is higher than the price return alone. Over three years, the total return was approximately 55.82%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The estimated price was $10.33, and the current price is $9.68.

Income and distribution explanation

This ETF has a distribution yield of approximately 12.76%. This number describes the cash distributions relative to the ETF's price. The fund usually pays out money monthly, with 13 distributions recorded over the last 12 months.

It is important to remember that a high distribution yield does not mean an investor earned that same percentage as their total return. Total return is the most accurate way to see how much value was actually gained or lost.

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 EMD, the erosion-risk score is 75, which is labeled as "Mild price erosion." This is a measurement of risk, not a guarantee that the fund's value has collapsed. There is no severe erosion-risk flag for this ETF.

Pros

• The fund has a high income rating grade of "A."

• The three-year total return has been positive at approximately 55.82%.

Cons

• The share price has seen a decline, with a YTD price return of approximately -8.94%.

• The fund shows a "mild" erosion-risk score.

Beginner takeaway

When looking at EMD, notice the difference between the share price and the total return. While the share price has gone down over the last year, the total return remained positive because of the cash distributions. Always look at total return to get the full picture, and remember that high yields can exist even when share prices are falling.