ETF Education Report: First Trust-abrdn Global Opportunity Income Fund (FAM)

What this ETF is trying to do

The First Trust-abrdn Global Opportunity Income Fund (FAM) is an exchange-traded fund (ETF) listed on the NYSE. While the specific investment strategy is not detailed in the provided data, the name suggests it focuses on seeking income opportunities on a global scale.

What the numbers show

It is important to understand the difference between price return and total return. Price return only tracks how much the share price changes. Total return includes both the price change and any cash distributions paid out to investors.

• Year-to-Date (YTD): The YTD price return is approximately 3.50%. However, the YTD total return is higher at approximately 12.58%.

• One Year: The one-year price return was approximately 11.09%. The one-year total return was approximately 24.67%.

• Three Years: Over the last three years, the share price has seen a decline of approximately 35.74%. The three-year total return was approximately -11.84%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was approximately $5.86. The current price is $6.51.

Income and distribution explanation

This ETF has a distribution yield of approximately 11.06%. This means the fund pays out a significant amount of cash relative to its share price. These distributions happen usually monthly, with 12 payments recorded over the last year.

It is vital to remember that a high distribution yield does not mean an investor earned that percentage as their total return. While distributions provide cash income, they do not guarantee that your original investment (your principal) will stay the same value.

NAV erosion explanation

This fund has a severe erosion-risk flag. The data shows an erosion score of 30, which is labeled as "Significant price erosion" with a severity level of "significant."

"NAV erosion" is a term used when the value of the underlying assets in the fund decreases. While a falling market price is not the same thing as NAV erosion, this fund shows significant price deterioration. When a share price falls heavily over time—as seen in the three-year price return of -35.74%—it can destroy the principal an investor originally put in. Income investors often prefer funds where the price stays steady or goes up slightly, because if the price collapses, the cash income may not be enough to make up for the loss in value.

Pros

• The fund has provided a high one-year total return of approximately 24.67%.

• It offers a high distribution yield for those seeking regular cash payments.

Cons

• There is a severe erosion-risk flag.

• The three-year price return shows a significant decline of approximately 35.74%.

• The three-year total return is negative at approximately -11.84%.

Beginner takeaway

When looking at high-yield ETFs, always look at both the price return and the total return. A fund might pay a lot of cash (high distribution yield), but if the share price is dropping significantly, the total value of your investment could still go down.