What is the SEC Yield?
The SEC yield is a standardized yield calculation that allows for fair comparisons of bond funds. Developed by the U.S. Securities and Exchange Commission (SEC), it is based on the most recent 30-day period covered by a fund’s filings with the SEC. The yield figure reflects the dividends and interest earned during that period after deducting the fund’s expenses. Also known as the standardized yield, this metric provides a transparent look at a fund’s potential returns.
Understanding the SEC Yield
The SEC yield is utilized to compare bond funds effectively because it captures the effective rate of interest an investor may receive in the future. It’s especially practical for comparing mutual funds or exchange-traded funds (ETFs) since this yield measure is generally very consistent from month to month. The resulting yield calculation depicts the earnings an investor would yield over a 12-month period if the fund continued to earn at the same rate. It’s mandatory for funds to calculate this yield. This yield varies from the Distribution Yield, which is usually shown on a bond’s website.
Calculation of the SEC Yield
The 30-Day SEC Yield Formula
Most funds calculate a 30-day SEC yield on the last day of each month, though U.S. money market funds calculate and report a seven-day SEC yield. The standardized formula for the 30-day SEC yield includes the following variables:
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a = interest and dividends received over the last 30-day period
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b = accrued expenses over the last 30-day period, excluding reimbursements
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c = the average number of shares outstanding, on a daily basis, which were entitled to receive distributions
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d = the maximum price per share on the day of the calculation, the last day of the period
The formula of the annualized 30-day SEC yield is:
2 x (((a - b) / (c x d) + 1) \^ 6 - 1)
Key Takeaways
- The SEC yield is a standardized yield calculation developed for fair comparisons of bonds.
- The yield calculation shows investors what they would earn in yield over the course of a 12-month period if the fund continues to earn the same rate for the rest of the year.
Example of SEC Yield
Assume Investment Fund X earned $12,500 in dividends and $3,000 in interest. The fund also recorded $6,000 worth of expenses, 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. Here are the variable values:
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a = $12,500 + $3,000 = $15,500
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b = $6,000 - $2,000 = $4,000
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c = 150,000
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d = $75
Plugging these numbers into the formula results in:
30-day yield = 2 x ((($15,500 - $4,000) / (150,000 x $75) + 1) \^ 6 - 1), or 2 x (0.00615) = 1.23%
Related Terms: bond yield, distribution yield, money market funds, interest income, dividends.
References
- Vanguard. “What Are Money Market Funds?”
- Morningstar. “SEC Yield”.
