What is the SEC Yield?
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What is the SEC Yield?

The SEC yield is a commonly used method for calculating bond yields that allows for fair comparisons between different bonds. Investors can use the yield calculation to determine their earnings over 12 months if the fund maintains its current rate of return for the remainder of the year.

Basics

The U.S. Securities and Exchange Commission (SEC) created the SEC yield as a standardized way of calculating yield in bond funds to ensure fairness in assessments. This method facilitates impartial comparisons by considering the most recent 30-day period documented in the fund's filings with the SEC. By factoring in dividends and interest earned during this period, while deducting the fund's expenses, the SEC yield, alternatively known as the "standardized yield," offers a precise measure of performance.

What is the SEC Yield?

When it comes to evaluating bond funds, the SEC yield plays a crucial role in gauging the potential future interest rate for investors. Regarded as a dependable metric, it enables easy comparisons between mutual and exchange-traded funds (ETFs) due to its consistent monthly stability. The resulting calculation unveils the projected yield over 12 months, assuming the fund maintains the same rate. Every fund is obligated to compute this yield, setting it apart from the Distribution Yield commonly showcased on bond websites.

SEC Yield Calculation 

Unveiling the intricacies of the SEC yield calculation, various funds adopt this methodology to compute their yields monthly, except for U.S. money market funds, which calculate and report a seven-day SEC yield. The standardized formula for the 30-day SEC yield involves four key variables:

  • a: Interest and dividends acquired during the preceding 30-day period
  • b: Accrued expenses incurred over the same 30-day period, excluding reimbursements
  • c: Average number of shares entitled to receive distributions daily
  • d: Maximum price per share on the calculation's final day, concluding the period

The formula for calculating the annualized 30-day SEC yield:

2 x (((a - b) / (c x d) + 1) ^ 6 - 1)

Illustration of SEC Yield Calculation

Let's consider Investment Fund X as an example, which generated $12,500 in dividends and $3,000 in interest. The fund incurred expenses totaling $6,000, with a reimbursement of $2,000. With 150,000 shares eligible for distributions, and the highest share price reaching $75 on the day of calculation, the corresponding values are as follows:

  • a = $12,500 + $,3000 = $15,500
  • b = $6,000 - $2,000 = $4,000
  • c = 150,000 
  • d = $75

Using these variables in the formula:

30-day yield = 2 x ((($15,500 - $4,000) / (150,000 x $75) + 1) ^ 6 - 1) = 1.23%

Conclusion

The SEC yield is a crucial tool for comparing bond yields, enabling investors to assess potential earnings over 12 months if the fund's rate of return remains consistent. Developed by the U.S. Securities and Exchange Commission, this standardized calculation ensures fairness and transparency. By considering the most recent 30-day period and factoring in dividends, interest, and expenses, the SEC yield provides an accurate measure of performance. It differs from the Distribution Yield displayed on bond websites. The SEC yield calculation involves various variables, with a practical example illustrating its application. Overall, the SEC yield empowers investors with crucial information for informed bond investment decisions.

SEC Yield