What this ETF is trying to do

The DEFIANCE NASDAQ 100 LIGHTNINGSPREAD(TM) INCOME ETF (ticker: QLDY) is an exchange-traded fund listed on the NASDAQ. Based on its name and data, it focuses on providing income to investors. Its top holding is FIRST AMERICAN GOVERNMENT OBLIGS X, which makes up about 2.92% of the fund.

What the numbers show

When looking at an ETF, it is important to understand the difference between price return and total return.

• Price Return only tracks how much the share price moves up or down.

• Total Return includes both the share price changes and the cash distributions (dividends) paid out.

For QLDY, the share price has gone down recently. The year-to-date (YTD) price return is approximately -11.74%. Over the last year, the one-year price return was approximately -18.72%.

However, when you include the cash distributions, the total return looks different. The YTD total return is approximately 12.46%, and the one-year total return is approximately 13.18%. This shows that while the share price fell, the total value was helped by the cash paid out to investors.

To visualize this, if you had invested in the shares one year ago when the estimated price was about $50.95, and the current price is $41.42, the share price alone would show a loss.

Income and distribution explanation

This ETF is designed to pay out cash frequently. The distribution yield is approximately 36.00%. This means the amount of cash paid out is very high compared to the ETF's price.

The distributions are very frequent, occurring about 86 times over the last 12 months. Most of these payments happen on Wednesdays. While a high yield can provide regular cash, it is important to remember that a high yield does not guarantee the investment will grow in value.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. In this report, we look at an erosion-risk score to measure this risk.

QLDY has an erosion score of 55, which is labeled as "Moderate price erosion." This means there has been some moderate decline in the share price. While a falling market price does not always mean the fund's internal value (NAV) has collapsed, the moderate erosion label suggests the price has been trending downward.

Pros

• High Distribution Yield: The fund offers a very high distribution yield of approximately 36.00%.

• Positive Total Return: Despite the falling share price, the total return (including distributions) has been positive for both the year-to-date and one-year periods.

Cons

• Share-Price Decline: The actual price of the shares has decreased significantly over the last year.

• Moderate Erosion Risk: The fund has a moderate erosion-risk score, indicating price deterioration.

Beginner takeaway

For new investors, QLDY is an example of how price and income can move in different directions. You might see the share price going down (a price return loss) while still seeing a positive overall result because of the high cash payments (total return). Always remember that a very high distribution yield can exist even when the share price is falling.