![]() ![]() While shifts in portfolio strategy may be the manager’s astute response to economic conditions, investors should determine if a fund will meet their needs. Portfolio changes occur for various reasons, such as a strategic shift in response to economic conditions, impacts from large cash inflows/outflows or defaults on securities, which may have a major influence on investment decisions. Montoring these yields is no guarantee that an investor will be able to uncover instantly all significant changes within a bond portfolio, but when large directional variations occur, it may well be worth contacting the fund company for more information. Instances where there are significant deviations from the market or changes in magnitude between yield types should compel investors to research the underlying reasons for the difference. There can be, and usually are, differences between these types of yields, but these differences may exist solely due to the underlying assumptions inherent within the calculations themselves. ![]() If there is little difference between the 30-Day SEC Yield and the 12-month distribution rate, then the portfolio’s holdings are likely yielding the same currently as they have been for months (assuming no large interest rate moves or other marketplace changes have taken place). Neither method will guarantee the future income or return that will be realized, but analyzing a combination of 30-Day SEC yield and various distribution rates may provide better context of a fund’s performance, as it will capture the current yield potential of the portfolio as well as some historical information. ![]() Because this calculation is not based on actual fund distributions, it is more of a theoretical yield that an investor would receive if holdings and other elements remained the same for a year. This value is annualized and then divided by the fund’s net asset value at the end of the period, which provides a view of the income-producing potential for a portfolio given its more-recent holdings. It reflects the dividends and interest earned by a mutual fund during the most recent 30-day period after deducting expenses. Securities and Exchange Commission (SEC) developed the 30-Day SEC Yield as a standardized method for comparing bond funds. ![]() The resultant yield figure will be less vulnerable to large swings using an average price rather than a price at a point in time. Alternatively, the Sit Mutual Funds use a similar 12-month history for distributions, but calculate a fund’s average price over that time frame. Morningstar ®, an independent mutual fund rating service, calculates its Trailing Twelve Month yield (TTM yield) using a fund’s distributions during the past 12 months and the ending price for that time period. The price/principal amount may differ as well. For instance, the income component may be derived from a recent one-month distribution or a year’s worth of distributions an averaged income over a longer time frame will be less susceptible to erratic distributions, which could cause large swings in the yield calculation. It is important to note that there is no standardized format, so investors should pay attention to how the calculation was performed. This information gives the investor an indication of how much the fund paid on an historical basis. The fund distributions per share are then divided by the fund’s price per share to arrive at a yield. These calculations convey different information about each fund, and can help lead to better-informed investment decisions.ĭistribution rates are usually based on fund distributions paid over time - typically a 12-month period. The 30-Day SEC Yield is a common calculation provided by bond funds for this purpose, but other calculation methods such as “distribution rates” or “trailing yields” may be available as well. Investors often compare yields between different funds to gauge the level of income they may receive from their investment. ![]()
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