Yield Tilt Index Fund

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.

BREAKING DOWN '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. Index Fund

    An index fund is a type of mutual fund with a portfolio constructed ...
  2. Mutual Fund Yield

    Dividend payments divided by the value of a mutual fund’s shares. ...
  3. Index Investing

    A form of passive investing that aims to generate the same rate ...
  4. Weighted Average Market Capitalization

    A stock market index weighted by the market capitalization of ...
  5. Tilt Fund

    A fund developed when an institution compiles a core holding ...
  6. Tracker Fund

    An index fund that tracks a broad market index or a segment thereof. ...
Related Articles
  1. ETFs & Mutual Funds

    Best Vanguard Funds Suitable for a Dividend Strategy

    Learn about options from Vanguard for dividend investing strategies. Learn about the risks of investing in funds focused on dividends.
  2. ETFs & Mutual Funds

    The Best 8 Funds For Regular Dividend Income

    Here's a list of the top mutual funds which pay regular dividends, for frequent income.
  3. ETFs & Mutual Funds

    The 4 Best U.S. Large Cap Index Mutual Funds

    Discover the top four mutual funds that use passive investment approaches and follow stock indexes composed of U.S. large-cap equities.
  4. ETFs & Mutual Funds

    Enhanced Index Funds: Can They Deliver Low-Risk Returns?

    These funds may look appealing. Find out whether they can really live up to all of their promises.
  5. ETFs & Mutual Funds

    A Look at Vanguard's Global Dividend ETFs (VYMI)

    Global dividend ETFs offer competitive yields. Here are two from Vanguard to consider.
  6. ETFs & Mutual Funds

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  7. Managing Wealth

    How Mutual Fund Managers Pick Stocks

    Learn about how mutual fund managers choose stocks based on the type of funds they manage and the investment goals of the funds' shareholders.
  8. ETFs & Mutual Funds

    The 4 Best U.S. Equity Index Mutual Funds

    Find out which four index mutual funds are among the best U.S. equities index mutual funds for core holdings in your investment portfolio.
  9. ETFs & Mutual Funds

    3 Issues With International Dividend Yield ETFs (DWX, IDV)

    International dividend yield funds are designed to track indexes that consist of high dividend yielding international companies. Here are three factors to consider while evaluating such funds. ...
  10. ETFs & Mutual Funds

    ETF Tracking Errors: Protect Your Returns

    Tracking errors tend to be small, but they can still adversely affect your returns. Learn how to protect against them.
RELATED FAQS
  1. Is it possible to invest in an index?

    First, let's review the definition of an index. An index is essentially an imaginary portfolio of securities representing ... Read Answer >>
  2. Which mutual funds have the lowest fees?

    Discover why index mutual funds are generally less expensive than actively managed funds and learn about three of the lowest-cost ... Read Answer >>
  3. What metrics should I evaluate when looking for high-yielding dividend stocks?

    Evaluate high-yield dividend stocks to determine if they are a good investment to produce steady income. Learn what questions ... Read Answer >>
  4. Do mutual funds pay dividends?

    Find out when mutual funds pay dividends and how these distributions are generated, including what types of assets are included ... Read Answer >>
  5. Why do index funds tend to have low expense ratios?

    Understand what an index fund is and why the nature of index funds causes them to have lower expense ratios than more actively ... Read Answer >>
  6. Do mutual funds pay dividends or interest?

    Learn how and why mutual funds pay interest or dividends, including the different funds and which types generate each type ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center