ETF Education Report: ISHARES IBONDS OCT 2034 TERM TIPS ETF (IBIK)

What this ETF is trying to do

The ISHARES IBONDS OCT 2034 TERM TIPS ETF (ticker: IBIK) is an exchange-traded fund. Based on its name, it focuses on specific Treasury Inflation-Protected Securities (TIPS) that reach a certain term in October 2034.

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 only measures how much the share price itself has changed.

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

For IBIK, the numbers show a decline in both areas:

• Year-to-Date (YTD): The price return is approximately -6.18%. However, the total return is approximately -2.54%.

• One-Year: The price return is approximately -7.25%, while the total return is approximately -2.45%.

Because the total return is higher than the price return (for example, -2.45% is a "better" number than -7.25%), it shows that the cash distributions helped offset some of the share-price decline.

Income and distribution explanation

This ETF provides cash distributions to investors. The current distribution yield is approximately 5.33%. This means the amount of cash paid out is about 5.33% of the current share price. These payments usually happen quarterly, and there were 4 payments in the last 12 months.

It is important to remember that a high distribution yield does not guarantee you will make money. Even if an ETF pays out cash, the share price could still go down.

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 market price does not always mean the NAV is shrinking, we use "erosion scores" to measure risk.

IBIK has an erosion score of 75, which is labeled as "mild price erosion." This is a measurement of risk and is not a guarantee that the fund's value has collapsed. There is no "severe erosion-risk flag" for this ETF.

Pros

• The ETF provides regular cash distributions (usually quarterly).

• The total return is higher than the price return, meaning distributions are helping to cushion the share-price decline.

Cons

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

• Both the price return and total return have been negative for the year-to-date period and the one-year period.

• The erosion score indicates "mild price erosion."

Beginner takeaway

When looking at IBIK, notice that the share price has been falling. While the cash distributions (the 5.33% yield) help make the "total return" look better than the "price return," the overall performance for the year has still been negative. Always look at both price and total returns to get the full picture.