ETF Education Report: John Hancock Preferred Income Fund III (HPS)

What this ETF is trying to do

The John Hancock Preferred Income Fund III (HPS) is an ETF traded on the NYSE. While specific holdings are not listed in the current data, this type of fund generally focuses on providing income to its investors.

What the numbers show

When looking at an ETF, it is important to understand the difference between "price return" and "total return."

• Price Return: This measures only the change in the share price.

• Total Return: This includes both the change in share price and any cash distributions (dividends) paid out.

For HPS, the numbers show different trends depending on how long you look:

• Year-to-Date (YTD): The price return is approximately -14.50%. However, the total return is higher at approximately -8.40%.

• One Year: The price return was approximately -20.31%, while the total return was approximately -12.72%.

• Three Years: The price return was approximately -9.41%, but the total return was positive at approximately 18.55%.

To visualize the price change, if you had bought one share at the estimated price from roughly one year ago ($15.46), the current price is $12.32.

Income and distribution explanation

This ETF has a distribution yield of approximately 10.71%. This means the fund pays out a significant amount of cash relative to its price. These distributions usually happen monthly, with 12 payments made over the last year. Most of these payments have occurred on Thursdays.

It is important to remember that a high distribution yield does not mean the investor earned that same percentage as total return. You must look at the total return to see how the investment performed overall.

NAV erosion explanation

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

HPS has an erosion score of 55, which is labeled as "moderate price erosion." This indicates a moderate level of risk regarding price deterioration. While the share price has declined in the short term, this is a measurement of risk rather than a guarantee of what will happen to the fund's value.

Pros

• The fund provides a high distribution yield of approximately 10.71%.

• Over a three-year period, the total return was positive (approximately 18.55%), even though the share price itself declined.

Cons

• The fund has experienced a share-price decline over the last year.

• There is a moderate erosion-risk score of 55.

Beginner takeaway

When looking at HPS, it is helpful to distinguish between the cash you receive (distribution yield) and the actual growth of your investment (total return). While the high yield provides regular cash, the share price has been falling recently. Always look at the total return to get a complete picture of how an ETF is performing.