ETF Education Report: FIRST TRUST SHORT DURATION MANAGED MUNICIPAL ETF (FSMB)

What this ETF is trying to do

The FIRST TRUST SHORT DURATION MANAGED MUNICIPAL ETF (ticker: FSMB) is an exchange-traded fund. Based on its name, it focuses on municipal bonds with short durations.

What the numbers show

When looking at an ETF, it is important to know 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 payments (distributions) made to investors.

Here is what the data shows for FSMB:

• Year-to-Date (YTD): The price return is approximately -2.62%. However, the total return is slightly higher at approximately -0.26%.

• One Year: The price return was approximately -2.79%, while the total return was approximately 0.35%.

• Three Year: The price return was approximately 0.72%, while the total return was much higher at approximately 10.23%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The estimated price was $20.08, and the current price is $19.52.

Income and distribution explanation

Some investors look for ETFs that pay out cash regularly. This is called the "distribution yield." For FSMB, the distribution yield is approximately 3.25%. This ETF usually pays out money monthly, with 12 payments recorded over the last year.

It is important to remember that a 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 an ETF decreases over time. StockValueFinder uses an "erosion-risk score" to help measure this risk.

FSMB has an erosion score of 94, which is labeled as "Stable / sideways." The erosion severity is rated as "good," and there is no severe erosion-risk flag for this ETF.

Pros

• The ETF has a high income rating grade of "A."

• The three-year total return shows significant growth compared to the three-year price return.

Cons

• The year-to-date and one-year price returns have been negative, meaning the share price has declined during those periods.

Beginner takeaway

When studying FSMB, notice how the total return is often higher than the price return. This happens because the cash distributions help offset some of the share-price declines. Always look at both numbers to get a full picture of how an ETF is performing.