What is the 'SEC Yield'

The SEC yield is a standard yield calculation developed by the U.S. Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the period after the deduction of the fund's expenses. It is also referred to as the "standardized yield."

BREAKING DOWN 'SEC Yield'

The SEC yield is used to compare bond funds because it captures the effective rate of interest an investor may receive in the future. It is widely considered a good way to compare mutual funds or exchange-traded funds (ETFs) because this yield measure is generally very consistent from month to month. The resulting yield calculation shows investors what they would earn in yield over the course of a 12-month period if the fund continued earning the same rate for the rest of the year. It is mandatory for funds to calculate this yield.

Calculation of the SEC Yield

Most funds calculate a 30-day SEC yield on the last day of each month, though U.S. money market funds calculate and report a seven-day SEC yield. The standardized formula for the 30-day SEC yield consists of four variables:

a = interest and dividends received over the last 30-day period

b = accrued expenses over the last 30-day period, excluding reimbursements

c = the average number of shares outstanding, on a daily basis, which were entitled to receive distributions

d = the maximum price per share on the day of the calculation, the last day of the period

The formula of the annualized 30-day SEC yield is:

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

As an example, assume Investment Fund X earned $12,500 in dividends and $3,000 in interest. The fund also recorded $6,000 worth of expense, of which $2,000 was reimbursed. The fund has 150,000 shares entitled to receive distributions, and on the last day of the period, the day the yield is being calculated, the highest price the shares reached was $75. In this scenario, the variables equal:

a = $12,500 + $,3000 = $15,500

b = $6,000 - $2,000 = $4,000

c = 150,000

d = $75

Once these numbers are plugged into the formula, it looks like this:

30-day yield = 2 x ((($15,500 - $4,000) / (150,000 x $75) + 1) ^ 6 - 1), or 2 x (0.00615) = 1.23%

RELATED TERMS
  1. Running Yield

    Running yield is the annual income on an investment divided by ...
  2. Yield On Cost - YOC

    Yield on Cost (YOC) is the annual dividend rate of a security, ...
  3. Mutual Fund Yield

    Mutual fund yield is a measure of the income return of a mutual ...
  4. Effective Yield

    The effective yield is the yield of a bond which has its coupons ...
  5. Earnings Yield

    The earnings per share for the most recent 12-month period divided ...
  6. Yield Spread

    A yield spread is the difference between yields on differing ...
Related Articles
  1. Investing

    How Bond Yields Could Topple the Stock Market

    Bond yields have reached a crucial point since the election that could be bad news for the stock market.
  2. Investing

    SPDR: Top 5 High Dividend-Yield Sector ETFs (XLRE, XLU)

    Learn about the risk factors present in several high dividend-yielding sector ETFs, and discover which sector investors may want to consider avoiding.
  3. Investing

    Yield Investing: Dividend, Earnings And FCF

    There are numerous ways to value investments, and many investors prefer a specific valuation method. Yield investing is one way to value a stock by comparing the current price to various factors. ...
  4. Investing

    4 Best Dividend-Paying U.S. Equity ETFs (HDV, XOM)

    Explore detailed analyses of the top three U.S. dividend-paying financials ETFs, which have trailing 12-month dividend yields of over 5%.
  5. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  6. Investing

    Short-Term Bond ETFs Draw Investors as Yields Surge (SJNK, SHY)

    Investors have been flocking to short-term bond ETFs recently, as yields have been rising sharply.
  7. Investing

    ETF for FTSE High Dividend Yield Index (VYM)

    Discover a high dividend yielding exchange-traded fund (ETF) that almost perfectly mimics the performance and behavior of the FTSE High Dividend Yield Index.
  8. Investing

    3 Best High-Yielding Intermediate Government Bond ETFs (MBSD, VGIT)

    Discover three exchange-traded funds that invest in U.S. government and agency fixed-income securities, and that have high12-month distribution yields.
  9. Investing

    Long-Term Treasury Bond ETFs Are Attracting Assets in 2016 (TLT, TLH)

    Discover five exchange-traded funds that invest in U.S. Treasury long-term bonds and experienced large year-to-date capital inflows as of March 4, 2016.
  10. Financial Advisor

    The Top 5 Intermediate Bond Funds for 2016

    Discover the top five intermediate-term bond mutual funds that invest in fixed-income securities with an average maturity between one and seven years.
RELATED FAQS
  1. How can I use the holding period return yield to determine whether or not I should ...

    Find out how to use the holding period return yield formula to determine whether it is a good time to sell your bond based ... Read Answer >>
  2. Do Vanguard ETFs pay dividends?

    Learn about Vanguard exchange-traded funds (ETFs) and how most of them typically have low expense ratios and pay dividends ... Read Answer >>
  3. What size of annual dividend yield is typical of companies in the financial services ...

    Learn the importance of calculating the annual dividend yield and how income investors can use it to analyze companies in ... Read Answer >>
  4. What does a negative bond yield mean?

    Find out what it means when a bond has a negative yield and what circumstances must arise for the yield to be negative when ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  3. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  5. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  6. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
Trading Center