Paper Boat Creative / Getty Images In this article, we dig down to the fundamentals of mutual fund yields and make yields easy to understand.
What Is the Trailing Twelve Month (TTM) Yield?
A mutual fund’s TTM yield refers to the percentage of income the fund portfolio returned to investors over the past 12 months. The TTM is an acronym referring to “trailing twelve months.” It is calculated by taking the weighted average of the yields of the holdings—such as stocks, bonds, or other mutual funds—that are in the fund portfolio. By comparison, the yield for a particular fund’s underlying stock holdings is calculated by dividing the total dollar amount of dividends the stock paid out as income to shareholders by the stock’s share price. The TTM yield provides a recent history of a mutual fund’s average dividend and interest payouts to investors. For example, if you are analyzing a fund and you see that it’s TTM yield is 3.00%, it would have paid out $3,000 to an investor with a $100,000 average investment amount during the previous year. However, it is important to note that the TTM yield should be considered an estimate because it may not represent the actual income received by a particular investor. Also, as with past performance, the income paid out by a mutual fund in the past year is no guarantee that it will yield the same amount over the next 12 months.
What Is the 30-Day SEC Yield?
A mutual fund’s 30-day SEC yield refers to a calculation that is based on the 30 days ending on the last day of the previous month. The yield figure reflects the dividends and interest earned during the period, after the deduction of the fund’s expenses. The yield is named for the SEC, because it is the yield that companies are required to report by the Securities and Exchange Commission. For bond funds, the SEC yield figure approximates the yield an investor would receive in a year, assuming that each bond in the portfolio is held until maturity. But keep in mind that bond fund holdings (the underlying bond securities) are not held to maturity, and bond funds do not “mature.” However, the 30-day SEC yield still provides useful information to investors because it helps estimate income, expressed as a percentage, needed for planning purposes.
TTM Yield vs. 30-Day SEC Yield
As you may already understand by reading this article thus far, the primary difference between a mutual fund’s TTM yield and its 30-day SEC yield is that the latter is a more recent measure of yield. Neither figure should be considered an accurate predictor of a fund’s future income-generating potential. Generally, if the Federal Reserve is lowering interest rates, the yields on stocks, bonds and the mutual funds that hold these securities will also decline. For example, if the TTM yield is 3.99%, and the 30-day SEC yield is 2.99%, you may plan for the fund’s yield over the next months and year to be below 2.99%. Just be sure to be conservative in your estimates, and never expect rates to move higher in the short-term. The opposite is also generally true: If the Fed is raising rates, yields on bonds will tend to rise as well. In this environment, an investor may expect the SEC yield for a bond fund to rise. However, investors should be cautioned that bond fund prices (the NAV) tend to decrease or have returns below the historical norms.
Bottom Line
If you are an income investor and you are looking at a mutual fund’s TTM yield and its 30-day SEC yield, which one is the best yield to analyze? Or should you consider both yields? Investors looking for income are smart to learn the basics of analyzing the yield of a mutual fund. In summary, the TTM yield shows yield over the past year, and the 30-day SEC yield shows the most current yield (as of the last 30 days).
