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Fund Spy

Highlighting Income: SEC Yield

Morningstar is changing the yield calculation we highlight on fund Quote pages.

Which yield to use when comparing funds is one of the trickiest questions in investing. Part of the problem is that there's no single agreed-upon definition of yield. Another is that there's an important distinction between what the underlying bonds in the portfolio actually yield and what a fund pays out via its regular distributions. This has left the door open for a variety of different calculations, some of which have more utility than others.

One of the most common and simple methods for calculating a fund's yield is to take its most recent income distribution, annualize it, and divide it by the fund's net asset value. Sometimes called the distribution yield or current yield, that method has the virtue of being a good snapshot in time but won't give you any idea of what a fund has been earning. If a fund's distributions have recently increased or decreased, for example, its yield may look higher or lower than it did just days before.