ETF Education Report: FIRST TRUST CALIFORNIA MUNICIPAL HIGH INCOME ETF (FCAL)

What this ETF is trying to do

The FIRST TRUST CALIFORNIA MUNICIPAL HIGH INCOME ETF (FCAL) is an exchange-traded fund. Based on its name, it focuses on providing income through California municipal bonds.

What the numbers show

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

• Price Return: This measures only the change in the share price.

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

For FCAL, the numbers show different trends depending on how long you look:

• Year-to-Date (YTD): The price return is approximately -6.00%. However, the total return is higher at approximately -3.51%.

• One Year: The price return was approximately -5.11%, while the total return was approximately -1.79%.

• Three Years: The price return was approximately -1.60%, but the total return was positive at approximately 8.31%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was $48.85. The current price is $46.35.

Income and distribution explanation

This ETF provides cash distributions to investors. The distribution yield is approximately 3.64%. This means the amount of cash paid out is about 3.64% of the current share price. These payments usually happen monthly, with 12 payments recorded over the last year.

It is important to remember that a high distribution yield is not the same as total return. While distributions provide cash, they do not guarantee that your original investment will stay the same value.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. StockValueFinder uses an "erosion-risk score" to measure this risk.

FCAL has an erosion score of 75, which is labeled as "mild price erosion." This is a measurement of risk and does not mean the fund's value has definitely collapsed, but it suggests there has been some decline in price over time.

Pros

• The three-year total return is positive at approximately 8.31%, meaning the combination of price changes and distributions has grown over that period.

• The ETF provides regular monthly cash distributions.

Cons

• The share price has seen declines in the short term (year-to-date and one-year periods).

• The erosion-risk score indicates "mild price erosion."

Beginner takeaway

When looking at income-focused ETFs like FCAL, always look at the total return rather than just the price or just the yield. The total return tells you how much you actually gained or lost after including the cash payments. Also, keep an eye on erosion-risk scores to understand how much the share price has been moving.