what is SEC Yield

The SEC yield is a standardized yield calculation for funds developed by the U.S. Securities and Exchange Commission (SEC). It is based on the most recent 30-day period covered by the fund's filings with the SEC and reflects the dividends and interest earned during the period after the deduction of the fund's expenses.

1. **Purpose of SEC Yield**: The SEC yield is used to compare bond funds because it captures the effective rate of interest an investor may receive in the future. It is important for investors to consider the SEC yield as it provides a more accurate representation of the fund’s yield compared to simple yield measures like distribution yield or trailing yield.
2. **Calculation of SEC Yield**: The formula for the 30-Day SEC yield is:
\[
\text{SEC Yield} = 2 x (((a - b) / (c x d) + 1) ^ 6 - 1)
\]
where:
- \(a\) is the interest and dividends received over the last 30-day period,
- \(b\) is the accrued expenses over the last 30-day period, excluding reimbursements,
- \(c\) is the average number of shares outstanding, on a daily basis, the last day of the period,
- \(d\) is the maximum public offering price per share on the last day of the period.
3. **Example of SEC Yield**: For instance, Investment Fund X earned $12,500 in dividends and $3,000 in interest. The fund also recorded $6,000 worth of expense, of which $2,000 was reimbursed. The fund has 150,000 shares entitled to receive distributions, and on the last day of the period, the highest price the shares reached was $75. The SEC yield for this fund would be calculated using the above formula.
4. **Comparison with Distribution Yield**: The SEC yield is based on the fund's past performance and does not guarantee future returns. It is argued that the SEC yield provides more accurate results in comparison to the distribution yield, and the calculation is more consistent month-to-month. However, both calculations show past performance—not future performance—and the calculations both follow assumptions that may skew results. The SEC yield is consistent and allows investors to make comparisons between funds easily.

In conclusion, the SEC yield is a valuable tool for investors looking to compare the performance of bond funds. It provides a standardized method for calculating yield that takes into account the fund's income, expenses, and historical performance, offering a more accurate picture of the fund's potential future returns.