Fixed Income Basics
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Yield to Maturity:
The single discount rate that equates the present value of a bond’s cash flows to its market price. Also referred to as the internal rate of return of a bond.
This measure is a commonly used measure for bond investors, but it does not take into account any fund-related expenses. Yield to maturity may provide information about the yield characteristics of portfolio holdings, but it is not a prediction or guarantee of an investor’s actual return.
Yield to Worst:
Similar to yield to maturity, this measure may be relevant to bonds with embedded options where, in certain market scenarios, the bond may be called before maturity. This measure is often a more conservative measure than yield to maturity and may be used on corporate bonds and portfolios. Yield to worst generally represents the lowest calculated yield among applicable call, put, or maturity scenarios, based on the assumptions used in the calculation.
Implied Yield:
The annualized rate of return generated by a fund’s investment in forward currency contracts. This calculation is intended to show the yield of forward currency contracts, assuming that foreign exchange rates remain constant.
For this reason, a substantial portion of a forward currency contract’s return may be attributable to returns derived from exposure to foreign interest rates. These interest rates are “embedded” in the value of the forward currency contract and cannot be separated from the spot return component of the contract. Currency strategy funds may distribute capital gains on these contracts annually, depending on the fund’s structure and tax treatment.
Embedded Income Yield:
Represents the annualized rate of return generated by a fund’s investments in both fixed income securities and derivatives exclusive of interest rate changes and movement in foreign exchange spot rates. This calculation is an estimate of the income characteristics of the portfolio given current holdings and market conditions. The embedded income yield will differ from the portfolio’s yield to maturity due to the incorporation of derivatives in the embedded income yield.
This term may provide information regarding portfolio income characteristics by combining the yield to maturity of bonds and any impact on income potential from derivative positions, such as forward currency contracts. The term will also be relevant for the rising rate suite of products where the implied interest rate on the futures contracts is offset against the yield to maturity of the bond portion.
Embedded income yield is an estimate based on assumptions and current portfolio characteristics. It is not a projection, promise, or guarantee of future income, distributions, or investment returns.
SEC 30-Day/Standardized Yield:
A standardized yield calculation required by the Securities and Exchange Commission (SEC) for certain registered investment companies. It is based on the most recent 30-day period covered by the funds’ filings with the SEC. The yield reflects the dividends and interest earned during the period, after the deduction of the fund’s expenses.
Distribution Yield/Indicated Yield: Calculated by annualizing the most recent fund distribution and dividing by the fund’s current NAV. The yield represents a single distribution from the fund and does not represent the fund’s total return and should not be interpreted as a prediction of future distributions or returns.
Many income-focused investors may be sensitive to how much net yield is distributed to fund shareholders. This amount is perhaps the most difficult to forecast in an exchange-traded fund. Actual distributions may vary and are not guaranteed.
12-Month Yield: The sum of the per-share dividends over the last 12 months, divided by the fund’s current net asset value (NAV). In short, this is a 12-month trailing calculation of the distribution yield mentioned above.
While no single yield measure provides a complete assessment of a fund’s income characteristics, the measures described above may provide information investors can consider together with the fund’s investment objectives, risks, fees, expenses, and other characteristics.
