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. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  2. Tax Shelter

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

    1. A distribution of a portion of a company's earnings, decided ...
  4. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends ...
  5. Double Taxation

    A taxation principle referring to income taxes that are paid ...
  6. Historic Pricing

    A method for calculating the value of an asset using the last ...
Related Articles
  1. The Lowdown On Index Funds
    Options & Futures

    The Lowdown On Index Funds

  2. Index Investing
    Mutual Funds & ETFs

    Index Investing

  3. Mutual Fund Basics Tutorial
    Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

  4. 5 Things You Need To Know About Index ...
    Investing Basics

    5 Things You Need To Know About Index ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center