Also known as a distribution yield, Morningstar computes this figure by summing the trailing 12-month’s income distributions and dividing the sum by the last month’s ending NAV, plus any capital gains distributed over the same period. Income refers only to interest payments from fixed-income securities and dividend payoffs from common stocks.
Origin
Morningstar computes this figure in-house, using the trailing twelve month's income distributions, NAV, and capital gains.
Example
Parkstone Bond Investors-A Shares fund has a 12-month distribution yield of 5.45% and a SEC yield of 0% as of 02/28/99. The difference can be accounted for either by the differing time periods the numbers are based on (distribution yield is based on the trailing 12 months, while SEC yield is a trailing 30-day figure) or by differing accounting methods used in each calculation.
In general, 12-Month Yield gives a good picture of the current yield investors are receiving from their funds. (SEC Yield, in contrast, is a good measure of the income return currently priced into a fund's bonds.) Because bond funds are typically sold based on their yield, managers often buy super-high coupon bonds issued when rates were higher. Distributing these high coupons artificially boosts funds' 12-Month Yields, though it also causes a fund's NAV to erode. (Data as of 02/28/99.)
For the Pros
The formula for yield is as follows:
Yield = Income/ (NAV + Capital Gains)
Where Income = the sum of the trailing 12-month income dividends
Capital Gains = the sum of the trailing 12-month capital gains
Note: When NMF appears, it indicates that the fund did not properly label its distributions.