ETF Education Report: Western Asset High Yield Defined Opportunity Fund Inc (HYI)

What this ETF is trying to do

Western Asset High Yield Defined Opportunity Fund Inc (ticker: HYI) is an ETF traded on the NYSE. While the specific investment strategy is not detailed in the provided data, the name suggests it focuses on "high yield" opportunities.

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. For HYI, the one-year price return was approximately -15.81%. The year-to-date (YTD) price return was approximately -10.75%.

• Total Return: This includes the share price change plus any distributions (cash payments) received. The one-year total return was approximately -6.41%, and the YTD total return was approximately -3.29%.

Interestingly, while recent short-term returns have been negative, the three-year total return was approximately 17.27%.

To visualize the price change, if you had purchased one share roughly one year ago at the estimated price of $11.83, that same share would be worth $9.96 today.

Income and distribution explanation

This ETF has a high distribution yield of approximately 12.40%. This means the fund pays out a significant amount of cash relative to its share price. These distributions usually happen monthly, with 13 payments recorded over the last year.

It is important to remember that a high distribution yield does not mean you are earning that percentage as your total return. Total return is the most accurate way to see how much value an investment has actually gained or lost over time.

NAV erosion explanation

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

HYI has an erosion score of 55, which is labeled as "moderate price erosion." This indicates a moderate level of risk regarding price deterioration. However, there is no "severe erosion-risk flag" for this ETF.

Pros

• The fund provides a high distribution yield of approximately 12.40%.

• It has shown a positive total return over a three-year period of approximately 17.27%.

Cons

• The share price has seen a decline recently, with a one-year price return of approximately -15.81%.

• The fund has a moderate erosion-risk score of 55.

Beginner takeaway

When looking at high-yield ETFs like HYI, it is easy to focus only on the large cash payments (the distribution yield). However, a high yield can sometimes be accompanied by a falling share price. Always look at the total return to see how the share price changes and the cash payments work together.