Understanding the QQQD ETF

What this ETF is trying to do

The QQQD ETF, known as the Direxion Daily Magnificent 7 Bear 1X Shares, is an "inverse" ETF. This means it is designed to move in the opposite direction of certain large companies. While most ETFs aim to go up when the market goes up, an inverse ETF is built to perform differently based on its specific strategy.

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 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 QQQD, the numbers show a decline in both areas:

• Year-to-Date (YTD): The price return is approximately -11.14%, while the total return is approximately -9.30%.

• One Year: The price return is approximately -15.00%, while the total return is approximately -12.25%.

To visualize this, we can look at an estimated price from roughly one year ago. The price was approximately $13.56, and the current price is $11.53.

Income and distribution explanation

Some investors look for ETFs that pay out cash, known as distributions. QQQD has a distribution yield of approximately 3.58%. This means the cash paid out is about 3.58% of the current share price. These distributions usually happen quarterly, and over the last 12 months, there were four payouts. It is important to remember that a high distribution yield does not mean the investor earned that much in total return, especially if the share price is falling.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of an ETF's underlying assets decreases over time. StockValueFinder uses an "erosion-risk score" to measure this risk. QQQD has an erosion score of 55, which is labeled as "moderate price erosion." This is a measurement of risk and does not necessarily mean the fund's value has definitely collapsed, but it is a factor to watch.

Pros

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

Cons

• The share price has seen a decline over the last year.

• The total return is currently negative for both the year-to-date and one-year periods.

• The fund has a moderate erosion-risk score.

Beginner takeaway

When looking at an ETF like QQQD, it is helpful to distinguish between the cash you receive (distribution yield) and the actual change in your investment value (total return). Because this is an inverse ETF, its price movements work differently than standard funds. Always look at the total return to get a fuller picture of how the investment has performed.