Confused about SEC Yield on VFSUX

[Freedom56]

"The SEC yield, also referred to as the standardized yield, is a computation that allows comparison of bond funds that fall under the jurisdiction of the Securities and Exchange Commission (SEC). It assumes that an investor holds each bond in a portfolio to maturity, the SEC yield is used to estimate the yield an investor can expect to receive based on historical returns. Moreover, the yield follows an assumption that the income made will be reinvested, and it also accounts for expenses and fees."

The assumption that a bond fund will hold a security to maturity is not even realistic. Bond fund are in a buy high and sell low mode and are selling securities at a loss. The SEC yield is an inflated number in a rising rate environment. Distribution yields are what you actually earn.

[all4j]

Quote:

Originally Posted by aja8888 Could be the fund is replacing bonds with low coupons with new ones with higher ones. Obviously has to do with the maturing or sold bonds in the fund.

You could be right about replacing the holdings, but not so obvious to me that it is only bonds maturing/sold. I took a quick peek & fund has a lot of moving parts that I'm not taking the time to dig thru. But, did notice it is leveraged & using derivatives. My bet is they are shorting interest rates. May also be fiddling with duration, currency (fund has holdings outside US also), et al. ETFs that are inverse to interest rates are among highest performers ytd.

It may be instructive to notice this fund has a distribution yield of 5.05% and a SEC yield of 4.75% (this per pimco web site and as of 8/31; I'd expect 9/30 numbers should be available soon). So, if fund is increasing the distribution, why wouldn't sec yield be higher? Again, I didn't dig into the numbers to know how pimco calculates distribution yield, but it can vary by fund company. It can be a bit of a marketing, headline number more than some seem to think. It can be distorted by the way they handle expenses (likely here since leveraged), cap gain/loss, tips type holdings, etc. SEC yield is standardized (although still not predictive and also based on history).

[jazz4cash]

Quote:

Originally Posted by daylatedollarshort I have a hard time understanding how bond funds with so much previous low coupon bond holdings could possibly, suddenly have a 4.5% yield now.

They don’t.

[daylatedollarshort]

Quote:

Originally Posted by jazz4cash They don’t.

I already posted that I made a mistake in mixing up the yields between different funds in post #14, so I'm not sure what your point is.

[jazz4cash]

Quote:

Originally Posted by daylatedollarshort I already posted that I made a mistake in mixing up the yields between different funds in post #14, so I'm not sure what your point is.

Sorry. I’m late to this thread and must’ve missed your subsequent post.

[Lsbcal]

Here is a link to the daily yield information for Vanguard funds:

https://personal.vanguard.com/us/fun...2022&year=#res

So you can see the rise of the SEC yield for VFSUX over a year's time. You can see the gradual rise.

[Lsbcal]

Quote:

Originally Posted by Freedom56 "The SEC yield, also referred to as the standardized yield, is a computation that allows comparison of bond funds that fall under the jurisdiction of the Securities and Exchange Commission (SEC). It assumes that an investor holds each bond in a portfolio to maturity, the SEC yield is used to estimate the yield an investor can expect to receive based on historical returns. Moreover, the yield follows an assumption that the income made will be reinvested, and it also accounts for expenses and fees." The assumption that a bond fund will hold a security to maturity is not even realistic. Bond fund are in a buy high and sell low mode and are selling securities at a loss. The SEC yield is an inflated number in a rising rate environment. Distribution yields are what you actually earn.

Why is SEC yield an inflated number in a rising rate environment? It seems to me that it is a decent way to compare among similar types of bond funds.

Also, you earn the distribution yield + the capital gains (loss). I track this data monthly as a bond fund comparison. Currently I do not own VFSUX or any bond funds but might be a buyer in the future.