12-Month Yield

What it means: This yield represents the distributions paid by a fund over the past year. It’s calculated by adding up any income distributions over the past 12 months, then dividing that by the sum of the most recent net asset value (NAV) and any capital gains distributions made over that time.

Matt’s take: Like the distribution yield, 12-month yield is a good indicator of the income being paid out by a fund. And since it looks at the past year of payments, it’s less affected by fluctuations in the monthly fund distribution. 12-month yield is good for understanding a fund’s income history, or what it has paid out in the past.

30-Day SEC Yield

What it means: Based on the most recent 30-day period, this yield reflects the interest earned during the period by the average investor in the fund, after deducting the fund’s expenses for the period. This is a standard calculation developed by the SEC in order to provide a standard comparison among bond funds. Providers may calculate other yields differently, but every fund (except money market funds) must follow the same formula for SEC yield.

Matt’s take: The 30-day SEC yield is the only yield metric for which all fund providers have to use the same calculation. As such, it’s generally considered to be the best metric to use when comparing funds. 

So which yield is best? Again, it depends on what you want to do. If I want to get a sense of how much income a fund has paid out historically, I use the distribution or 12-month yield. If I want to get a sense of where a fund’s distributions may trend going forward, I use average YTM (always deducting fund expenses from it). In my experience, I’ve found that the actual distribution paid out by a fund tends to be somewhere in between the past distribution yield and the YTM.

Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog.  You can find more of his posts here.

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