The 30-day yield is a standardized yield calculation developed by the U.S. Securities and Exchange Commission (SEC) for bond funds12. It is based on the most recent 30-day period covered by the fund's filings with the SEC and is used to compare bond funds because it captures the effective rate of interest an investor may receive in the future. The yield figure reflects the dividends and interest earned during the period after the deduction of the fund's expenses and is also referred to as the "standardized yield."
- Calculation and Formula: The formula for the 30-day SEC yield consists of four variables:
- a = interest and dividends received over the last 30-day period
- b = accrued expenses over the last 30-day period, excluding reimbursements
- c = the average number of shares outstanding, on a daily basis, which were entitled to receive distributions
- d = the maximum price per share on the day of the calculation, the last day of the period1.
The formula for the annualized 30-day SEC yield is: 2 x (((a - b) / (c x d) + 1) ^ 6 - 1)
- Purpose and Use: The 30-day yield is used to compare bond funds because it provides a standardized measure of the fund's income-generating potential over a 12-month period. It is calculated by dividing the net investment income per share earned over the last 30 days by the offering price per share on the date of the calculation3.
- Limitations: While the 30-day yield is a useful measure for comparing bond funds, it has limitations. Funds often trade actively and do not hold bonds until maturity, so the yield may not reflect the actual income distribution rate. Additionally, the yield does not take into account the amortization of premiums or discounts at which the bonds are trading24.
- Comparison with Distribution Yield: The 30-day yield should be distinguished from the distribution yield, which is calculated by taking the most recent distribution payment and multiplying it by 12 to get an annualized total, then dividing by the net asset value4. The distribution yield can be influenced by larger or smaller-than-normal payments that do not reflect the actual income over the period it represents.
11/1/2024 07:09pm
