ETF Education Report: FRANKLIN U.S. CORE BOND ETF (FLCB)

What this ETF is trying to do

The FRANKLIN U.S. CORE BOND ETF (FLCB) is an exchange-traded fund that focuses on bond investments. While the specific holdings are not listed in this report, bond ETFs generally aim to provide investors with exposure to various types of debt securities.

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 FLCB, the one-year price return was approximately -6.36%. The year-to-date (YTD) price return was approximately -6.03%.

• Total Return: This includes the share price change plus any cash distributions paid out to investors. The one-year total return was approximately -2.19%, and the YTD total return was approximately -2.90%.

Because the total return is higher than the price return, it shows that the cash distributions helped offset some of the share-price decline. Looking further back, the three-year total return was approximately 13.63%.

To visualize the price change, we can look at an estimated example. The current price is $20.32. An estimated price from roughly one year ago was approximately $21.70.

Income and distribution explanation

Some investors look at ETFs for regular cash payments, known as distributions. FLCB has a distribution yield of approximately 4.58%. This means the amount of cash distributed is about 4.58% of the current share price. These distributions usually happen monthly, with 12 payments recorded over the last year.

It is important to remember that a high distribution yield does not guarantee you will make money overall. As seen in the recent price returns, an ETF can pay out cash even while its share price is falling.

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 market price is not the same thing as NAV erosion, we use "erosion scores" to measure the risk of price deterioration.

FLCB 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. There is no "severe erosion-risk flag" for this ETF.

Pros

• The fund provides regular monthly distributions.

• The three-year total return has been positive at approximately 13.63%.

Cons

• The recent one-year and year-to-date price returns have been negative.

• There is a measurement of "mild price erosion" present.

Beginner takeaway

When studying FLCB, remember the difference between price and total return. The share price has declined recently, but the cash distributions (the yield) have helped make the total return less negative. Always look at the total return to see how distributions affect your overall results.