Estimated Long-Term Return

What is 'Estimated Long-Term Return'

Estimated long-term return is a hypothetical measure providing investors with an estimated expectation for the return they can expect over the life of an investment. It can be commonly used in investments with a fixed duration such as unit investment trusts.

BREAKING DOWN 'Estimated Long-Term Return'

Estimated long-term return measures are a metric that some funds may choose to disclose in their registration documentation and marketing materials. Proposals have been made to provide this information in the Form S-6 which is the registration statement filing for unit investments trusts however no final rules have been dispersed.

Unit Investment Trusts

Unit investment trusts provide an ideal vehicle for estimated long-term return disclosure since they are issued with a fixed maturity date. Under the Investment Company Act of 1940 unit investment trusts are one of three formal investment companies regulated by the legislation. Other regulated investment companies include face amount certificate companies which are rarely utilized and management investment companies which have the power to create all types of closed-end and open-end funds.

Unit investment trusts are created through a trust structure. They are not required to have a board of directors. These investments also only issue redeemable securities which are a part of the trust structure. One of the most popular unit investment trusts is the SPDR S&P 500 ETF Trust. With this vehicle the State Street Global Advisors Trust Company is the trustee. Shares issued for trading are considered units of the SPDR S&P 500 Trust which is formally the registered unit investment trust company.

Return Disclosure

Unit investment trusts are required to provide full details on investment returns and their calculations. Documentation requirements for unit investment trusts are detailed in the Form S-6 which is the form required for registration and distribution approval by the Securities and Exchange Commission.

Some unit investment trusts may include past and hypothetical estimated long-term returns in their prospectus documentation. This can be most common with portfolios highly concentrated in fixed-income securities. Fixed income securities in particular provide for calculation of estimated long-term return based on the expected yield of the underlying securities.

The estimated long-term return is typically calculated as the annual percentage return based on the yields of all the underlying securities in the portfolio but is usually weighted to account for each security's market value and maturity. The return is often presented net of estimated fees.

The estimated long-term return can be a helpful point of consideration when planning on investing in a unit investment trust for its full duration. It can give a fairly accurate estimation of the return on the portfolio. It is similar to the yield to maturity measure of a single bond extended to a portfolio, with some adjustments.