ETF total return consists of two components: price return and dividend return. Price return measures the change in the ETF's share price from purchase to the current date, while dividend return captures the income distributions paid out during the holding period. Only by combining both components can you accurately assess an ETF's true performance.

The annualized return, also known as the Compound Annual Growth Rate (CAGR), converts the total return into an equivalent annual rate. This standardized measure allows you to compare the performance of ETFs held for different time periods on an equal basis. The formula is: Annualized Return = ((Ending Value / Beginning Value) ^ (1 / Years)) - 1.

When evaluating ETF performance, it is important to consider the holding period. Short-term returns can be misleading due to market volatility, while long-term annualized returns provide a more reliable picture of an ETF's ability to generate consistent growth. Investors should also factor in expense ratios and taxes, which are not captured in raw return figures but significantly affect net investment outcomes.