Yield Tilt Index Fund

AAA

DEFINITION of 'Yield Tilt Index Fund'

A type of mutual fund that allocates capital as a standard index, by replicating the holdings of a specified stock index, such as the Standard & Poor's 500 Index (S&P 500), except that the fund weights its holdings towards stocks that offer higher dividend yields. Stocks with higher dividend yields are given a greater portfolio weighting, making them represent more of the fund's portfolio than they otherwise would in the standard index.

INVESTOPEDIA EXPLAINS 'Yield Tilt Index Fund'

The rationale behind the creation of yield tilt index funds is based on the fact that dividend payments issued to shareholders can be subject to "double taxation", meaning that they are taxed once at the corporate level and then once again at the shareholder level.

Due to this effect, some investors contend that the market must value the share prices of high-yield stocks at somewhat of a discount to other stocks, so as to provide an increased return on high-yield stocks in order to compensate for the negative tax effects. The theory is that an investor who is able to purchase a yield tilt index fund in a tax-sheltered investment account may be able to outperform the index, since they receive the supposed valuation benefit but are sheltered from taxes on the dividends they receive.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Double Taxation

    A taxation principle referring to income taxes that are paid ...
  3. Tax Shelter

    A legal method of minimizing or decreasing an investor's taxable ...
  4. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  5. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  6. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
RELATED FAQS
  1. How much variance should an investor have in an indexed fund?

    An investor should have as much variance in an indexed fund as he is comfortable with. Variance is the measure of the spread ... Read Full Answer >>
  2. What can cause the rate of return to be negative?

    Several factors can cause an investment to have a negative rate of return. Poor performance of a company or companies, turmoil ... Read Full Answer >>
  3. What information should I focus on in my mutual fund's prospectus?

    The U.S. Securities and Exchange Commission (SEC) requires investment companies to provide potential and current investors ... Read Full Answer >>
  4. How can I get a free mutual fund prospectus?

    Mutual funds are sold via prospectus, as mandated by the Securities Act of 1933. The prospectus document outlines many features ... Read Full Answer >>
  5. Is there an index for tracking mid-cap stocks?

    There are several indexes for tracking mid-cap stocks. The most widely referenced is the S&P Mid-Cap 400, but others ... Read Full Answer >>
  6. What are the most popular mutual funds that invest in the automotive sector?

    There are few mutual funds that invest with a primary focus in the automotive industry, although major auto companies such ... Read Full Answer >>
Related Articles
  1. Options & Futures

    The Lowdown On Index Funds

    If you can't beat the market, why not join it? Read on to go over your options.
  2. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  3. Mutual Funds & ETFs

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  4. Options & Futures

    Key Factors Of The Russell 2000 Index

    The Russell 2000 index represents the small cap universe, with a broad selection of fast growth companies at the bottom end of the capitalization spectrum.
  5. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  6. Active Trading Fundamentals

    Where And How Should You Make Your First Trade?

    New traders should enter markets that offer the greatest opportunity for learning their craft while keeping risk at a minimum.
  7. Mutual Funds & ETFs

    How Janus Capital Makes Money

    Before investing in Janus, it is prudent to understand how it makes money and what costs detract from shareholder wealth.
  8. Professionals

    Mutual Funds: How Many is Too Many?

    How many mutual funds are too many when it comes to a well diversified portfolio?
  9. Investing Basics

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.
  10. Mutual Funds & ETFs

    How To Mimic A Hedge Fund Strategy

    Hedge fund replication strategies are beneficial to individual investors who would like hedge fund-like returns without the drawbacks.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center