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Why Are Mutual Fund and ETF Yields So Confusing?

What Does Your Fund Yield?

Some investors buy mutual funds and exchange-traded funds (ETFs) to help generate income—which typically comes from either stock dividends or bond interest payments. But how do you measure income or “yield” on these investments?

Most funds display two measures of yield, which can help investors understand a fund’s yield story.

30-day SEC yield

In an effort to standardize yield reporting, the Securities and Exchange Commission (SEC) developed the 30-day yield metric, which must be displayed by any fund that reports its yield. To calculate it, a fund divides its net income per share (dividends plus interest) during the 30-day period by the best price per share on the last day of that same period. This metric doesn’t reflect what a fund distributed to fund shareholders over the prior year, so it’s most helpful when considering funds with monthly income payments, like bond funds.

Distribution yield

Also called the “trailing 12-month yield” or “TTM,” this metric is calculated by dividing a fund’s cumulative distributions over the previous 12 months by its net asset value (NAV) at the end of the period. Because this indicator is backward-looking, it doesn’t reflect recent portfolio adjustments or price changes that could affect the fund’s future yield. As a result the TTM yield is usually considered an estimate.

Both metrics help you measure a fund’s income—but both have limitations. Many investors consider the backward-looking TTM an estimate and the SEC yield more current and a stronger indicator of what to expect in the near future.

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Important disclosures:

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Some specialized exchange-traded funds can be subject to additional market risks. Investment returns will fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Charles Schwab Investment Advisory, Inc., is an affiliate of Charles Schwab & Co., Inc.

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