Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Investors’ Limitless Risk Appetite - 27th Jan 21
3 Dividend Paying Stocks to Ride the New Housing Boom - 27th Jan 21
Biden Seeks Huge Spending, Globally Coordinated Tax Hikes - 27th Jan 21
Will Inflation Make Gold Shine in 2021? - 27th Jan 21
Amazon AI Stocks Investing Analysis 2021 - 27th Jan 21
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Markets Are a Mixed Bag ETF Attributes: Part 2a - iShares Bonds

Stock-Markets / Exchange Traded Funds Apr 20, 2009 - 07:39 AM GMT

By: Richard_Shaw

Stock-Markets

Best Financial Markets Analysis ArticleIn Part 1, we examined Vanguard bond and stock ETFs. In this Part 2a, we look at iShares bond funds with 12 or more months of distribution data (plus their preferred stock fund).

iShares is the largest ETF provider. Their ETFs differ importantly from Vanguard’s in two important ways.


First, iShares uses sampling and derivatives to achieve the returns of the indexes they track, versus Vanguard which uses a replication or very high sample rate approach (e.g. iShares AGG has 175 holdings and Vanguard BND has 3,903 holdings, yet both seek to track the same index).

Second, iShares ETFs are independent portfolios, while Vanguard uses a “master/feeder” structure.  That means Vanguard mutual funds and ETFs share a common master portfolio, and the ETFs and mutual funds are different “feeder” funds that invest in bulk in the corresponding master fund (that helps control costs).


The table provides the yield,  expense ratio, number of holdings, credit quality, and effective duration of each fund. In addition, we list three different yield figures (and there are others).  We show (1) the 12-month trailing income distributions divided by the current price, (2) the SEC 30-day yield, and (3) the “annual dividend yield” as reported by Schwab, which they get from Morningstar.

There is a fourth type of yield not reported in the table, called “distribution yield”.  Here is how Morningstar calculates that:

Distribution Yield is the Trailing 12-Month End Yield - Morningstar computes this figure by summing the trailing 12-month’s income distributions and dividing the sum by the last month’s ending Net Asst Value (NAV), plus capital gains distributed over the same time period. Income refers only to interest payments from fixed-income securities and dividend payments from common stocks.

That’s too complicated for our purposes,  It is also not current to the day, but only to the ETF net asset value (do they use price for ETFs?) as of the end of the last month.

Our trailing yield calculation is simpler, because it is all income distributions over the past 12-months divided by the market price as of the date of the calculation.  That doesn’t make it better, just easier for us to conceptualize.

There is a specialized fifth yield type called “real yield”, which is used for inflation protected bonds.  The real yield is the what the bond pays net of the CPI increment to yield.  The term has long been used to describe rates.  The real interest rate is the nominal interest rate minus inflation.

Then there is yield to maturity and yield to worst, and probably more varieties that bond professionals use that we don’t know about.

This discussion of yield is not provided to confuse you, but to point out that just as “earnings” for stocks have numerous definitions which are seldom noted when the “E” figure is tossed about; the “yield” for bond funds also has numerous definitions which are seldom noted when the “Y” figure is tossed about.

Sometimes one method makes more sense than the other, but it requires an awareness of the method differences and something about the character of the underlying portfolio holdings.

For example, the SEC 30-day yield is probably a good fund-to-fund comparator if both funds own monthly interest bonds, or so many bonds that the income is received smoothly through the year.

However, if a fund receives interest on an irregular basis or or at intervals longer than monthly, the SEC yield can vary widely from month-to-month.  To be simplistic, if a fund owned all semi-annual payment bonds, and they all had the same payment dates, the fund would have a zero SEC yield in 10 of 12 months, and an enormously overstated yield in 2 of 12 months.  That problem arises because the SEC yield is simply the sum of the receipts in the past 30 days annualized.

The distribution yield and 12-month trailing yield suffer from changing rates. For example, a bond fund with substantial inflows and outflows or high turnover would have a misleading distribution or trailing yield if rates changed significantly.  Take the example of the extremely short maturity SHV (duration about 4 months).  It would be essentially useless to know the 12-month trailing in a period where rates fell from say 3% to 0.25% over the course of the year.

Bottom line — it’s not a great idea to just take yield figures at face value from some website or even the fund fact sheets when planning or reviewing your portfolio.  A little understanding of how the yields are calculated will go a long way.  It is also inappropriate to compare yields on funds without also knowing about the duration, credit quality and other factors to differentiate your opportunities and risks.

By Richard Shaw 
http://www.qvmgroup.com

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Copyright 2006-2009 by QVM Group LLC All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules