What this ETF is trying to do

The FIRST TRUST EMERGING MARKETS LOCAL CURRENCY BOND ETF (ticker: FEMB) is designed to invest in bonds from emerging markets. Specifically, it focuses on bonds that are denominated in the local currency of those countries.

What the numbers show

To understand how this ETF has performed, we can look at two different types of returns: price return and total return.

Price Return only looks at the change in the share price. For example, over the last year, the one-year price return was -2.87%. This means the price of a single share went down by that amount. The year-to-date (YTD) price return is -4.05%.

Total Return looks at the overall performance, which includes both the share price change and any distributions (like cash payments) the fund paid out. Even though the share price went down over the last year, the one-year total return was 3.66%. Over a longer period of three years, the three-year price return was 8.44%, while the three-year total return was 29.87%.

The current price of the ETF is $28.59. For comparison, the estimated price from roughly one year ago was $29.44.

Income and distribution explanation

This ETF has a distribution yield of 6.70%. This number tells you how much cash the fund pays out relative to its current share price. These distributions usually happen every month.

It is important for new investors to know that a high distribution yield does not mean an investor earned that full percentage as their total return. Distributions provide cash income, but they do not guarantee that the original amount of money invested (the principal) will stay the same. A fund can pay out a high yield even if its share price is falling.

NAV erosion explanation

NAV erosion is a term used to describe when the value of an ETF's underlying assets decreases over time. StockValueFinder uses an erosion-risk score to measure this.

For FEMB, the erosion-risk score is 94. This is labeled as "Stable / sideways" with a severity rating of "good." This measurement suggests that there is no evidence of significant price deterioration in the fund's core value based on these specific risk indicators. There is currently no severe erosion-risk flag for this ETF.

Pros

• The ETF has provided a positive total return over the last three years (29.87%).

• It offers regular monthly distributions, which can provide consistent cash income.

• The erosion-risk score indicates that the fund's value is currently considered stable.

Cons

• The share price has seen a decline both year-to-date and over the past year.

• While total returns are positive, they are different from the price returns, meaning the share price itself has not increased in the short term.

Beginner takeaway

When looking at FEMB, it is helpful to see the difference between price return and total return. While the share price has gone down recently, the total return includes the cash distributions paid out to investors. This ETF provides a monthly distribution yield of 6.70%, but remember that these payments do not automatically protect the value of your initial investment if the share price continues to drop.