ETF Education Report: Invesco Municipal Trust (VKQ)

What this ETF is trying to do

The Invesco Municipal Trust (VKQ) is an Exchange Traded Fund (ETF). While the specific investment goals are not listed in the data, ETFs generally allow investors to buy a collection of different assets through a single share.

What the numbers show

When looking at an ETF, it is important to know the difference between "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 VKQ, the numbers show different trends depending on how much time has passed:

• Year-to-Date (YTD): The price return is approximately -12.95%. However, the total return is higher at approximately -7.77%.

• One Year: The price return was approximately -12.23%, while the total return was approximately -5.17%.

• Three Years: The price return was a small gain of about 0.36%. However, the total return was much higher at approximately 24.12%.

To visualize the price change, we can look at an estimated price from roughly one year ago. The price was approximately $9.57, and the current price is $8.40.

Income and distribution explanation

Some investors look for ETFs that pay out regular cash. This is called the distribution yield. For VKQ, the distribution yield is approximately 8.97%. This means the ETF has paid out about 8.97% of its price in cash over the last year. These payments usually happen monthly, with 12 payments recorded in the last year.

It is important to remember that a high distribution yield does not mean you have earned that much in total return. You must look at the total return to see how the investment performed overall.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in an ETF decreases. While a falling share price does not always mean the NAV is eroding, we use "erosion scores" to measure this risk.

VKQ has an erosion score of 75, which is labeled as "mild price erosion." This is a measurement of risk and is not a guarantee that the fund's value has collapsed. There is no "severe erosion-risk flag" for this ETF.

Pros

• The three-year total return is positive at approximately 24.12%.

• The ETF provides a relatively high distribution yield of approximately 8.97%.

Cons

• The one-year and year-to-date price returns have been negative.

• The five-year total return is approximately -12.99%.

Beginner takeaway

When looking at VKQ, notice that the total return is usually better than the price return. This is because the cash distributions help offset some of the share-price declines. However, high yields can sometimes be accompanied by a falling share price, so it is important to look at both numbers together.