ETF Education Report: GBAB

What this ETF is trying to do

GBAB is an ETF listed on the NYSE. Based on its name, it focuses on tax-exempt municipal bonds and investment-grade debt.

What the numbers show

It is important to understand 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 the money paid out through distributions.

Here is what the data shows for GBAB:

• Year-to-Date (YTD): The price return is -7.57%. However, the YTD total return is -1.85%.

• One Year: The one-year price return was -8.62%. When including distributions, the one-year total return was 1.08%.

• Three Years: The three-year price return was -17.23%, while the three-year total return was 10.67%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was $15.09. The current price is $13.79. If you had invested $10,000 into this ETF one year ago, the share price alone would have dropped to approximately $9,138 before accounting for any cash distributions.

Income and distribution explanation

This ETF has a distribution yield of approximately 10.94%. This means the fund pays out a significant amount of cash relative to its price. These distributions usually happen monthly, often on a Friday. Over the last 12 months, there were 12 distributions totaling $1.51 per share.

While high yields provide cash income, 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 over time. While a falling market price does not always mean the NAV has declined, we use "erosion-risk scores" to measure this risk.

GBAB has an erosion score of 55, which is labeled as "moderate price erosion." This indicates a moderate level of risk regarding how the share price is behaving.

Pros

• The ETF provides a high distribution yield of approximately 10.94%.

• When including distributions, the one-year and three-year total returns have been positive.

Cons

• The ETF has experienced share-price declines over the one-year and three-year periods.

• There is a moderate erosion-risk score.

Beginner takeaway

When looking at high-yield ETFs, it is easy to focus only on the cash being paid out. However, a high distribution yield can sometimes exist alongside a declining share price. Income investors often look for ETFs where the price stays steady or goes up, because if the share price collapses, it can cancel out the benefits of the cash income. Always look at the "total return" to see how both price changes and distributions work together.