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A Tale of Two Yields: Part I

What a comparison of a fund's trailing 12-month and SEC yields can tell us.

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We recently started displaying the 30-day SEC yield for funds, in addition to the trailing 12-month yield. Whereas a fund's TTM yield is based on its distributions over the trailing 12-month period, its SEC yield is based on what the securities in its portfolio are yielding closer to present day. 

Neither figure is an indicator of a fund's future income-generating potential. A fund's past income returns, distribution history, and net asset value growth or erosion may shed more light on that potential, but even those factors should not be viewed as predictive. Even so, the comparison of a fund's TTM and SEC yields is arguably more useful than looking at either one in isolation. While both yields reflect income generated by bonds, dividend-paying stocks, and other securities, the SEC yield is mandated for any fund that reports its yields--thus providing a standardized approach to a difficult calculation. An increasing number of firms are providing both figures for investors and to Morningstar. Debate over the minutia of each calculation is beyond the scope of this article. Instead, we'll provide a glimpse into what a comparison of a fund's TTM and SEC yields can reveal.

Michael Herbst has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.