What is the SEC yield?
SEC 30-Day Yield: The U.S. Securities and Exchange Commission (SEC) created the SEC yield, a standard yield computation that makes comparing bond funds more equitable. The most recent 30-day period covered by the fund’s SEC filings is the basis for this calculation. The yield shows the interest and dividends received after the fund’s expenditure deduction. Another name for it is the “standardized yield.”
Understanding the SEC Yield
Since it represents the potential future effective rate of interest that an investor may earn, the SEC yield is used to compare bond funds. Because this yield metric is often very stable from month to month, it is usually regarded as a valuable tool for comparing mutual or exchange-traded funds (ETFs). The yield calculation that results illustrates to investors the yield they would get over 12 months, assuming the fund maintained its current rate of return for the remainder of the year. Funds are required to compute this yield. The distribution yield, usually shown on a bond’s website, differs from this yield.
Estimating the SEC Yield
On the last day of the month, most funds compute and publish a 30-day SEC yield; however, U.S. money market funds compute and report a seven-day SEC yield. Four factors make up the traditional calculation for the 30-day SEC yield:
a = interest and dividends earned within the previous thirty days
b = total costs incurred within the previous thirty days, not including reimbursements
c = the daily average of the outstanding shares that were eligible for dividends
d = the highest share price on the day of computation, which is the final day of the period
The annualized 30-day SEC yield is calculated as follows:
2 x (((a – b) / (c x d) + 1) ^ 6 – 1)
SEC Yield Example
Let’s say that Investment Fund X received $3,000 in interest and $12,500 in dividends. Additionally, the fund reported $6,000 in expenses, of which $2,000 were paid back. The fund contains 150,000 shares eligible for dividends; the most excellent price was $75 on the last day of the term, which is also the day the yield is computed. The variables in this case are equivalent to:
a = $12,500 + $3000 = $15,500
b = $6,000 minus $2,000 = $4,000
c = 150,000
d = $75
Once these numbers are plugged into the formula, it looks like this:
30-day yield = 2 x (($15,500 – $4,000) / (150,000 x $75) + 1) ^ 6 – 1), or 2 x (0.00615) = 1.23%
Conclusion
- The SEC yield is a typical calculation designed for fair bond comparisons.
- The yield calculation provides investors with the yield they would get over 12 months, provided the fund maintained its rate of return for the remainder of the year.
