When investors analyze the return of an investment fund, they may look at the Trailing Twelve Month (TTM) return or the 30-day return from the Securities and Exchange Commission (SEC). Both types of returns can be useful in aiding investment decisions; however, it is important to understand how each works and how investors can benefit from them.
What is the Trailing Twelve Month (TTM) Return?
The TTM return of an investment fund refers to the percentage of income generated by the fund’s portfolio for investors over the past 12 months. The TTM is calculated by taking the weighted average of returns for the assets – such as stocks, bonds, or other investment funds – that are in the fund’s portfolio.
In comparison, the return for the underlying equity assets of a specific fund is calculated by dividing the total amount of money paid by the stocks as dividends to shareholders by the share price. The TTM return provides a recent history of the average dividends and interest for investors in the investment fund.
For example, if you are analyzing a fund and see that its TTM return is 3.00%, it means that it would have paid $3,000 to an investor with an average investment amount of $100,000 over the past year. However, it is important to note that the TTM return should be viewed as an estimate because it may not represent the actual income received by a particular investor.
Also, similar to past performance, the income paid out by the investment fund in the previous year is not a guarantee that it will achieve the same amount over the next 12 months.
What is the 30-Day Return from the Securities and Exchange Commission (SEC)?
The 30-day return from the Securities and Exchange Commission (SEC) for an investment fund refers to a calculation based on the last 30 days ending on the last day of the previous month. The figure reflects the percentage of earnings and interest accrued during the period, after deducting fund expenses. This return is named the SEC return because it is the return that companies are required to report under SEC regulations.
For bond funds, the estimated SEC return approaches the return that an investor would receive over a year, provided that each bond in the portfolio is held until maturity. However, it should be kept in mind that the assets of bond funds (the underlying securities of the bonds) are not necessarily held until maturity, and bond funds do not complete.
Nevertheless, the 30-day return from the SEC provides useful information for investors as it helps estimate the required income, expressed as a percentage, for planning purposes.
TTM Return vs. 30-Day SEC Return
As you may already understand from reading this article so far, the main difference between the TTM return of an investment fund and the SEC’s 30-day return is that the latter is a more recent measure of return. Neither figure should be considered an accurate indicator of a fund’s ability to generate income in the future.
Analyzing the TTM and SEC returns together can highlight interest rate trends and guide expectations. For instance, if the TTM return is higher than the SEC’s 30-day return, the combined information reveals that the fund’s future return may decline further. This information may also be considered alongside prevailing interest rates and the economy in general.
Generally, if the Federal Reserve is lowering interest rates, the returns on stocks, bonds, and mutual funds containing those securities will also decrease. For example, if the TTM return is 3.99% and the SEC’s 30-day return is 2.99%, you can plan for the fund’s return over the coming months and year to be less than 2.99%. Just make sure to be conservative in your estimates and do not expect prices to rise in the short term.
The opposite
It is also generally true: if the Federal Reserve raises interest rates, bond yields will also rise. In this environment, an investor can expect the SEC yield of a bond fund to rise as well. However, investors should be warned that bond fund prices (net asset value) tend to decrease or have returns below historical norms.
Conclusion
If you are an investor looking for income and considering the TTM yield and the 30-day SEC yield of an investment fund, which yield is better to analyze? Or should you consider both yields? Investors seeking income are better off learning the basics of analyzing an investment fund’s yield. In summary, the TTM yield reflects the return over the past year, while the 30-day SEC yield reflects the most recent return (over the last 30 days).
Frequently Asked Questions (FAQs)
What is a good 30-day SEC yield or TTM yield?
The average yield on investments depends on the type of investment in question. The average stock does not generate the same amount as the average bond. The average growth stock does not generate the same amount as the average value stock. To get an idea of what a “good yield” is for your investment, compare it to an index that tracks similar securities. For instance, the yield from the Bloomberg Barclays U.S. Aggregate Bond Index can give you an idea of the expected average yield from bonds. Yields above this average can be considered “good,” but remember that higher yields can increase investment risks.
How are capital gains related to a stock’s TTM yield?
Capital gains and income are two ways an investor profits from their investments. The TTM yield is one measure of investment income. Income and capital gains are not necessarily interrelated; capital gains depend on trading, while income depends on company performance. However, companies generally tend to increase their earnings as their growth rates slow, and the chances for capital gains diminish.
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Sources: Securities and Exchange Commission. “Agreement for Modified and Reclassified Yield Services.”
Source: https://www.thebalancemoney.com/difference-between-ttm-yield-and-30-day-sec-yield-2466432
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