ETF Education Report: TDTT

What this ETF is trying to do

The FLEXSHARES IBOXX 3-YEAR TARGET DURATION TIPS INDEX FUND (Ticker: TDTT) is an exchange-traded fund (ETF). While the specific holdings are not listed in this report, this type of fund generally focuses on Treasury Inflation-Protected Securities (TIPS) with a specific target duration.

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 measures only the change in the share price. For TDTT, the one-year price return was approximately -4.12%. The year-to-date (YTD) price return was approximately -3.28%.

• Total Return: This includes the share price changes plus any cash distributions paid out to investors. For TDTT, the one-year total return was approximately 0.55%, and the YTD total return was approximately 0.30%.

Because the total return is higher than the price return, it shows that the cash distributions helped offset some of the share-price decline. Over a three-year period, the total return was approximately 15.08%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The estimated price was $24.27, and the current price is $23.27.

Income and distribution explanation

This ETF provides cash distributions to investors. The distribution yield is approximately 4.91%. Over the last 12 months, there were 8 distributions. These payments usually happen on a quarterly basis, though they most often land on a Monday.

It is important to remember that a high distribution yield does not guarantee that an investor will earn that same percentage as a total return. Total return is the most complete way to see how the investment performed overall.

NAV erosion explanation

"NAV erosion" refers to a decline in the Net Asset Value (the actual value of the assets held by the fund). While a falling share price can sometimes be a sign of erosion, it is not proof of it.

For TDTT, the erosion-risk 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.

Pros

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

• The total return figures show that distributions can help improve the overall performance compared to the share price alone.

Cons

• The fund has experienced a share-price decline over the last year and year-to-date.

Beginner takeaway

When studying TDTT, notice how the total return is different from the price return. Even though the share price went down over the last year, the total return remained positive because of the cash distributions. Always look at both numbers to get a full picture of how an ETF is performing.