*With multiple bond ETF yield measures to choose from, it can be difficult for investors to quickly assess what their fund is yielding. Matt Tucker reviews the most common yield measures and explains when to use each one, and why.*

When it comes to fixed income investing, the most common question clients ask is, “What’s the yield?” Since yield is an important component of a bond investment’s total return, investors need to be able to answer this question in order to accurately assess whether an investment is right for them.

To be honest, I usually answer by saying “Well, it depends on what you want to measure.” There are many different types of yield out there, and the “right” one will vary based on the situation.

The number of different types of yields for fixed income funds is almost endless. If you research a particular fund, you will often find metrics like current yield, yield to maturity, yield to worst, yield to call, SEC yield, distribution yield, tax equivalent yield and real yield, just to name a few. To help you understand which yield you should be looking at, let’s talk about the most common yield metrics and how they can be used.

**Distribution Yield**

*What it means:* This is the annual yield an investor would receive if the most recent fund distribution and current fund price stayed the same going forward. It’s calculated by annualizing the most recent distribution and dividing by the fund’s net asset value (NAV) from the as-of date.

*Matt’s take: *Distribution yield measures what a fund just paid out to investors, so it’s generally a good indicator of current income. The size of the distribution reflects the yield level that bonds were at when they entered into the fund, because of this the distribution yield is slow to adjust to changes in market yields. However, as fund distributions can vary month to month, it may not give you the best idea of what a fund has been paying out, which is why it’s also good to look at the 12-month yield.

**Average Yield to Maturity (YTM)**

*What it means:* This yield measure represents the weighted average YTM of the bonds in the fund as of a date, assuming that the bonds will be held to maturity and that all coupon payments and the final principal payment will be made on schedule. It’s the only yield measure that is gross instead of net of fees (such as the fund’s expense ratio), which means that fees should be deducted when comparing to other yield measures.

*Matt’s take: *YTM is a good indicator of what the bonds in the fund are yielding at a current point in time. When bond yields change in the market, the YTM on a fund also changes, and future bonds acquired by a fund will then be acquired at current YTM rates. In this way YTM can be a good indicator of where the fund distribution may be headed (see below).

*(for illustrative purposes only)*

**12-Month Yield**

*What it means:* This yield represents the distributions paid by a fund over the past year. It’s calculated by adding up any income distributions over the past 12 months, then dividing that by the sum of the most recent net asset value (NAV) and any capital gains distributions made over that time.

*Matt’s take: *Like the distribution yield, 12-month yield is a good indicator of the income being paid out by a fund. And since it looks at the past year of payments, it’s less affected by fluctuations in the monthly fund distribution. 12-month yield is good for understanding a fund’s income history, or what it has paid out in the past.

**30-Day SEC Yield**

*What it means:* Based on the most recent 30-day period, this yield reflects the interest earned during the period by the average investor in the fund, after deducting the fund’s expenses for the period. This is a standard calculation developed by the SEC in order to provide fairer comparison among bond funds. Providers may calculate other yields differently, but every fund (except money market funds) must follow the same formula for SEC yield.

*Matt’s take: *The 30-day SEC yield is the only yield metric for which all fund providers have to use the same calculation. As such, it’s generally considered to be the best metric to use when comparing funds between providers.* *

So which yield is best? Again, it depends on what you want to do. If I want to get a sense of how much income a fund has paid out historically, I use the distribution or 12-month yield. If I want to get a sense of where a fund’s distributions may trend going forward, I use average YTM (always deducting fund expenses from it). In my experience, I’ve found that the actual distribution paid out by a fund tends to be somewhere in between the past distribution yield and the YTM.

*Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to **The Blog**. You can find more of his posts **here**.*