Understanding the PLUS KOREA DEFENSE INDUSTRY INDEX ETF (KDEF)

What this ETF is trying to do

The PLUS KOREA DEFENSE INDUSTRY INDEX ETF, trading under the ticker KDEF, is an exchange-traded fund. While specific holdings are not listed in the current data, this type of ETF is designed to track an index related to the defense industry in South Korea.

What the numbers show

When looking at an ETF, it is important to understand two different types of returns: 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 to investors.

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

• Year-to-Date (YTD): The price return is approximately -9.05%, while the total return is approximately -7.86%.

• One Year: The price return is approximately -18.08%, while the total return is approximately -12.84%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The price was approximately $48.72, and the current price is $39.91.

Income and distribution explanation

Some investors look for ETFs that pay out cash, known as distributions. KDEF has a distribution yield of approximately 7.45%. This means the cash distributed is high relative to the current share price. Over the last 12 months, there were 9 distributions, which usually happen on a quarterly basis.

It is important to remember that a high distribution yield does not mean you are making a profit. As shown in the total return numbers above, an ETF can pay out cash even while the overall value of the investment is going 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 share price does not always mean the NAV is eroding, we use an erosion-risk score to measure this risk.

KDEF has an erosion score of 55, which is labeled as "Moderate price erosion." This indicates a moderate level of risk regarding the stability of the fund's value.

Pros

• The ETF provides a relatively high distribution yield of approximately 7.45%.

• It offers regular cash distributions (9 times in the last year).

Cons

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

• The total return is negative, meaning the combination of price changes and distributions has resulted in a loss for the period measured.

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

Beginner takeaway

When evaluating an ETF like KDEF, don't look at the distribution yield alone. A high yield can look attractive, but you must also look at the total return to see if the share price is dropping faster than the cash being paid out. In this case, both the price and the total return have declined over the past year.