SEC Yield

What is SEC Yield?

The SEC yield, also referred to as the standardized yield, is a metric that allows comparison of bond funds under the jurisdiction of the Securities and Exchange Commission (SEC). It assumes that an investor holds each bond in a portfolio to maturity; the SEC yield is used to estimate the yield an investor can expect to receive based on historical returns. Moreover, the yield assumes that the income will be reinvested and accounts for expenses and fees.

It is argued that the SEC yield provides more accurate results than the distribution yield and is more consistent month-to-month. Both calculations show past performance – not future performance – and both calculations follow assumptions that may skew results.

However, the SEC yield is consistent and allows investors to easily compare funds. It is not a measure of the returns to be expected from a fund, but rather a benchmark for yield performance comparison. It does not account for the fact that most funds do not mature, nor do they always hold bonds until maturity; rather, they actively trade them.

Most funds compute a 30-Day SEC yield on the last day of every month; however, a 7-day SEC yield is also computed and reported by funds in the United States. The 7-Day SEC yield indicates the potential yield of a fund if it paid income similar to the preceding seven days for an entire year.

Calculating the SEC Yield

The SEC yield can be found by finding the quotient of net investment income earned (per share) and the maximum offering price (per share). The calculation follows a 30-day period that ends on the last day of the preceding month, meaning the SEC yield is a month behind – i.e., one-month lag. The 30-day yield of a fund can be accessed in the “Statement of Additional Information (SAI)” section of the fund’s prospectus.

The formula for the 30-Day SEC yield can be seen below:

Consider the following example:

Assume that Sammie (an analyst contracted by an investor looking for fund recommendations) is currently analyzing Investment Fund ABC.

Sammie is given the following information about Fund ABC:

• Dividend earnings: $15,000
• Interest earnings: $3,800
• Accrued expenses: $8,900
• Outstanding shares that are entitled to receive distributions: 100,000
• Maximum share price: $90

Sammie can calculate the 30-day SEC yield using the second formula above.

To derive a, b, c, and d, as seen below:

• a = $15,000 + $3,800 = $18,800
• b = $8,900
• c = 100,000
• d = $90

The figures can be inserted into the formula to obtain:

30-day yield = 2 x ((($18,800 – $8,900) / (100,000 x $90) + 1) ^ 6 – 1)

30-day yield = 2 x (0.00661) = 1.32%

Distribution Yield

A distribution yield is defined as a way of measuring the annual income payments made to unitholders by an A-REIT or an exchange-traded fund (ETF) as a percentage or portion of its unit price. Distribution yield is a measure of income relative to an investment’s size.

Distributions are similar to dividends. They are commonly received by individuals or those with investments in ETFs and real estate investment trusts (REITs).

A distribution can be defined as a portion of the profits generated by a trust or fund that is distributed to unitholders or investors, and as an income payment. It is one way to make money from the investment classes (ETFs and REITs). Capital gains and distributions from investments ideally make up an investor’s total return.

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Additional Resources

CFI offers the Capital Markets & Securities Analyst (CMSA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

• Capital Gains Yield
• Exchange-Traded Fund (ETF)
• Real Estate Investment Trust (REIT)
• SEC Filings

See all Capital Markets resources