Understanding PFFL

What this ETF is trying to do

PFFL is an ETF (Exchange Traded Fund) that uses leverage. Being "leveraged" means the fund uses borrowed money or other tools to try and multiply the performance of its underlying index. This specific fund focuses on preferred stock.

What the numbers show

When looking at an ETF, it is important to look at different types of returns.

• Price Return: This measures only how much the share price has changed.

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

For PFFL, the data shows a decline in both areas:

• Year-to-Date (YTD): The total return is approximately -17.82%.

• One Year: The total return is approximately -24.39%.

• Three Year: The total return is approximately -21.72%.

• Five Year: The total return is approximately -63.54%.

To visualize the price change, the estimated price from roughly one year ago was $8.94. The current price is $6.76.

Income and distribution explanation

Some investors look for ETFs that pay out regular cash, known as distributions. PFFL has a distribution yield of approximately 10.90%. This means the cash payments are high relative to the current share price. These distributions usually happen monthly, with 10 payments recorded over the last year.

It is important to remember that a high distribution yield does not mean you are making a profit. If the share price falls more than the amount of cash you receive, your total investment value still goes down.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases over time. While a falling market price does not always mean the NAV is shrinking, we use an "erosion-risk score" to measure this risk.

PFFL 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 fund offers a high distribution yield of approximately 10.90%.

• It provides frequent cash payments, usually on a monthly basis.

Cons

• The fund has experienced significant share-price declines over the last year and five years.

• Because it is a leveraged fund, its price movements can be much larger than the standard market.

• The total returns have been negative over multiple timeframes.

Beginner takeaway

PFFL is a leveraged fund that pays high regular distributions. However, the high yield can be misleading if the share price is also falling. In this case, the significant negative total returns show that the decline in share price has outweighed the cash received from distributions.