ETF Education Report: SMMU

What this ETF is trying to do

The PIMCO Short Term Municipal Bond Active Exchange-Traded Fund (SMMU) is an ETF that trades on the NYSE. This type of fund generally focuses on municipal bonds, which are loans made to local governments.

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 only tracks 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 SMMU, the numbers show a difference between these two:

• Year-to-Date (YTD): The price return is approximately -1.88%, but the total return is +0.22%.

• One Year: The price return is approximately -1.97%, while the total return is +0.87%.

• Three Year: The price return is approximately 1.27%, while the total return is much higher at +10.48%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was about $50.48. The current price is $49.48.

Income and distribution explanation

This ETF provides cash distributions to investors. The distribution yield is approximately 2.91%. This means the amount of cash paid out is about 2.91% relative to the current ETF price. These payments usually happen monthly, and over the last 12 months, there were 12 payouts.

It is important to remember that a distribution yield tells you about the cash paid out, but it is not the same thing as your total return.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases. Investors often care about this because they want to keep their original investment (the principal) stable while collecting income.

For SMMU, the erosion-risk score is 94, which is labeled as "Stable / sideways." The erosion severity is described as "good," and there is no severe erosion-risk flag present.

Pros

• The fund has a high income rating grade of "A."

• The total return over three years (+10.48%) is significantly higher than the price-only return, showing that distributions add value to the overall performance.

Cons

• The share price has seen some declines (negative price returns) over the last year and year-to-date.

Beginner takeaway

When looking at SMMU, notice how the total return is higher than the price return. This happens because the cash distributions help offset the small drops in the share price. Always look at both numbers to get a full picture of how an ETF is performing.