What this ETF is trying to do

The FT VEST Investment Grade & Target Income ETF (ticker: LQTI) is an exchange-traded fund listed on the NYSE. While the specific holdings are not listed in this report, ETFs like this generally aim to provide a mix of investment-grade assets and target specific income levels for their 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 share price changes and the cash distributions (dividends) paid out.

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

• Year-to-Date (YTD): The price return is approximately -10.46%. However, the YTD total return is approximately -3.52%.

• One Year: The one-year price return is approximately -11.16%. The one-year total return is approximately -2.88%.

To visualize the price change, we can look at an estimated example. The estimated price from roughly one year ago was $20.28. The current price is $18.02. This shows a decline in the share price over that period.

Income and distribution explanation

This ETF has a distribution yield of approximately 9.62%. This number describes the cash distributions relative to the ETF's price. These payments are usually made monthly, with 12 payments recorded over the last year.

It is important to remember that a high distribution yield does not mean an investor earned that percentage as their total return. As seen in the data above, even with these cash payments, the total return for the year was still negative.

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 has declined, we use "erosion-risk scores" to measure this possibility.

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

Pros

• Monthly Income: The fund provides regular cash distributions, which occur most frequently on Mondays.

• High Yield: The distribution yield is relatively high at approximately 9.62%.

Cons

• Negative Returns: Both the share price and the total return have been negative for both the year-to-date period and the one-year period.

• Price Decline: The share price has decreased from its estimated level one year ago.

Beginner takeaway

When looking at high-yield ETFs, it is vital to look at the total return, not just the distribution yield. A high yield can provide cash, but if the share price is falling significantly, the total value of the investment may still go down. Always check the erosion-risk score to understand the potential for price deterioration.