Understanding the Northern Trust Short-Term Tax-Exempt Bond ETF (TAXS)

What this ETF is trying to do

The TAXS ETF is an exchange-traded fund that focuses on short-term, tax-exempt bonds. Investors often look at these types of funds to find ways to earn income that may have different tax rules compared to other investments.

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 the share price changes. For TAXS, the year-to-date (YTD) price return is approximately -1.88%. The one-year price return is approximately -1.37%. This means the actual cost of one share has gone down slightly over these periods.

• Total Return: This includes both the price changes and the cash distributions (dividends) paid out to investors. The YTD total return is approximately 0.03%, and the one-year total return is approximately 1.01%.

Because the total return is higher than the price return, it shows that the cash payments helped offset the drop in the share price.

To visualize this, if you had invested in the shares one year ago when the estimated price was about $50.09, and the current price is $49.41, the share price itself would have declined. However, when you include the distributions, your overall return would be positive.

Income and distribution explanation

This ETF provides regular cash payments, known as distributions. The current distribution yield is 2.42%. This number describes the cash payments relative to the ETF's current price.

The fund usually pays out money monthly, and it has made 12 payments over the last year. While these payments provide cash income, it is important to remember that a distribution yield is not the same as total return.

NAV erosion explanation

"NAV erosion" refers to a situation where the value of the underlying assets in the fund decreases over time. StockValueFinder uses an "erosion-risk score" to measure this risk.

For TAXS, the erosion score is 94, which is labeled as "Stable / sideways." The erosion severity is rated as "good," and there is no severe erosion-risk flag present. This suggests that the fund's value has remained relatively steady rather than showing significant deterioration.

Pros

• Positive Total Return: Even though the share price fell slightly over the last year, the total return remained positive due to distributions.

• Stable Risk Profile: The erosion-risk measurements suggest the fund is currently stable.

Cons

• Negative Price Return: The actual price of the shares has declined both year-to-date and over the last year.

• Lower Income Grade: The income rating for this fund is a "C" with a score of 68.

Beginner takeaway

When studying TAXS, it is helpful to look at both the share price and the total return. While the share price has seen a small decline, the distributions have helped keep the total return in positive territory. Always remember that a falling share price is different from NAV erosion, and high yields should always be viewed alongside the overall total return.