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lucky penny 12-04-2020 12:16 PM

Question about bond fund return based on "30-day SEC yield"
 
I hold Vanguard's short-term investment grade bond fund (VFSUX), which currently shows a 30-day SEC yield of .99%. I've been assuming that amount is the equivalent of a .99% interest rate for calculation purposes, but doing the math myself, last month's dividend was almost twice as much as that (as were dividends from prior months). I didn't add any funds during the month. I'm not complaining, but can someone explain that?

Logical explanation is that I'm not great at math (true) but I can't figure it out. I multiplied the balance x .99% then divided by 12. What am I missing?

I was going to ask Vanguard but thought one of you investment gurus might explain without guffawing at my ignorance.

audreyh1 12-04-2020 12:20 PM

Yes,

What you calculated was the distribution yield - the interest paid at the end of a given month or quarter, divided by the NAV at the end of the month or quarter.

SEC yield takes a look at the securities held by the fund and determines the future rate expected to be paid by the fund. It’s a bit more obscure. It. Is forward looking and annualized. You can expect a distribution yield to gradually drift up or down to the SEC yield. SEC yield is actually a good estimate of a bond funds future return assuming stable interest rates.

I often see a wide divergence between what a fund pays out in a given month and the SEC yield. I think the SEC yield is useful to compare funds and get a feel for future performance. But it’s not going to tell you what percent you’ll be paid today. If the SEC yield is lower than the distribution yield, you can expect interest/dividend payments to drop, and vice versa.

A bit more info: https://www.thebalance.com/distribut...you-use-416978

lucky penny 12-04-2020 12:36 PM

Thank you for that excellent explanation! :)


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