SEC yield

Definition

The SEC yield is a standardized method of calculating the yield of a mutual fund or exchange-traded fund (ETF). 

What is SEC yield?

A SEC yield provides investors with a more accurate representation of the fund’s yield compared to simple yield measures like distribution yield or trailing yield.

SEC yield takes into account the interest earned by the fund’s portfolio holdings, minus expenses incurred by the fund, over the most recent 30-day period. It’s important to note that SEC yield is based on the fund’s past performance and does not guarantee future returns.

The formula to calculate SEC yield is:

SEC Yield = Net investment income earned over the past 30 days / Average net assets for the period x Number of days in the period

The SEC yield is expressed as an annualized percentage, which allows investors to compare yields across different funds on a standardized basis. It provides a clearer picture of the income generated by the fund’s investments relative to its size and expenses.

Investors often use SEC yield as one of the factors in evaluating mutual funds or ETFs, especially fixed-income funds like bond funds, where income generation is a primary objective. However, it’s essential to consider other factors such as investment strategy, risk, and total return potential when making investment decisions.

Example of SEC yield

Let’s say you’re considering investing in a bond mutual fund. The fund’s net investment income over the past 30 days is $10,000. However, after accounting for expenses, the net income is reduced to $9,500. The average net assets of the fund over the same period amount to $500,000.

Using the formula for SEC yield:

SEC Yield = 9,500 / 500,000 x 30 = 1.14%

So, in this example, the SEC yield for the bond mutual fund would be 1.14%. This means that based on its recent income and expenses, the fund is generating an annualized yield of 1.14% for investors.