ETF Education Report: FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE)

What this ETF is trying to do

The FIRST TRUST PREFERRED SECURITIES AND INCOME ETF (FPE) is an exchange-traded fund listed on the NYSE. While the specific investment strategy is not detailed in the provided data, the name suggests it focuses on preferred securities to provide income for investors.

What the numbers show

When looking at an ETF, it is important to separate "price return" from "total return." Price return only tracks how the share price changes. Total return includes both the price change and any cash distributions paid out.

Based on the data provided:

• Year-to-Date (YTD): The price return is approximately -6.37%. However, the YTD total return is -2.18%.

• One Year: The price return was approximately -6.62%, while the one-year total return was approximately -0.89%.

• Three Years: The price return was approximately 8.52%, but the three-year total return was much higher at approximately 29.27%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The price was approximately $18.27, and the current price is $17.06.

Income and distribution explanation

This ETF provides cash distributions to investors. The distribution yield is approximately 6.29%. This means the amount of cash paid out is about 6.29% of the current share price. These payments happen frequently; in the last 12 months, there were 12 distributions, which usually occur on a monthly basis.

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

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. While a falling share price is not the same thing as NAV erosion, we use "erosion scores" to measure risk.

FPE 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 three-year total return shows a positive figure of approximately 29.27%.

• The ETF provides regular monthly cash distributions.

Cons

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

• There is a "mild" erosion-risk score of 75.

Beginner takeaway

When studying FPE, notice the difference between the share price and the total return. Even when the share price goes down, the total return might be higher because of the cash distributions received. Always look at the total return to get a full picture of performance, and remember that high yields are not a guarantee of overall profit.