Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis 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