Do the annualized yields provided for funds/etfs (e.g. TTM and 30-day SEC) account for the funds' expense ratio?

[petricia]

I've seen some confusion on this sub regarding this question, with some subtracting the expense ratio from the yield to calculate distributions and others saying the yield is already after expenses. I looked online and couldn't find a straight answer. I also checked the definition for TTM yield and 30-day SEC yield on my brokerage and it wasn't clear to me.

For reference, on Schwab this is how these yields are defined:

• TTM: 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 Asset 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.
• 30-day SEC Yield: The net investment income earned by a fund over a 30-day period displayed as of month-end. The 30-day SEC Yield is expressed as an annual percentage rate based on the fund's share price. It is calculated by dividing the net investment income per share for the 30 days ended on the date of calculation by the maximum offering price per share on that date. It is updated at month-end.

 

[pete2]

@petricia ER is accounted for in NAV/share price so yes. If someone thinks they’re not then I would ask how else are those expenses being paid?

 

[petricia]

@pete2 What about for MMF where the share price always stays at $1? If for those the expenses don't reduce share price, does it effectively reduce the stated yield?

 

[pete2]

@petricia Where else would the ER come from? For a MMF, since they distribute any increase in value to maintain $1 per share that is the pot of money they would have to extract their fee from.

Just look at the difference between, for example, SWVXX and SNAXX; the Investor class and Ultra class shares of the Schwab Value Advantage MMF. SWVXX has an net ER of 0.34% and SNAXX has a net ER of 0.19%, 0.15% different. SWVXX has a 7-day yield of 4.96% and SNAXX has a 7-day yield of 5.11%, 0.15% different.

https://www.schwab.com/money-market-funds

 

[leejr]

@pete2 OP asked about yield, not NAV.

 

[pete2]

@leejr But Schwab’s definition says Morningstar calculates TTM in part based on NAV. And SEC Yield is in part based on the funds share price.

 

[leejr]

@pete2 Yield has NAV/price in the denominator, not the numerator. Reducing the NAV in the denominator by some expense ratio has the effect of slightly increasing the yield by that percentage (not percentage points). Surely that's not what you meant?

 

[phongtranh142]

@leejr You don’t reduce the NAV, the NAV constantly captures the expense ratio. NAV is calculated post the fund removing any assets to pay for expenses.

 

[leejr]

@phongtranh142 The person I replied to said the same thing. They were accurate but not relevant. As are you.

 

[leejr]

@petricia Yes, those include expenses.

 

[wonderfulgrace]

@petricia I’m following to see if anyone has a better answer but I believe that it does take into account the expense ratio. I calculated it using SWVXX, they have a .34% expense ratio so that’s large enough that I we should be able to notice a difference and they have been fairly steady in the ballpark 4.9% to 4.95% yield range for a couple months

In the last distribution SWVXX paid out $0.0043… per dollar share and this is paid out monthly. I multiplied that by 12 to approximate the dividends per year to get 5.2%, subtracted the .34% expense ratio and I got 4.86% net expenses. I assume that the difference between the 4.86% and 4.9%-4.95% that I would expect is due to compounding, but because it’s so close I believe this is correct that the advertised yield is after expenses.

 

[lady_t]

@petricia No. Those are distribution yields. Expenses are taken out of the price every day.

 

[petricia]

@lady_t What about for MMF where the share price always stays at $1? If for those funds the share price stays the same, do the expenses effectively reduce the stated yield?

 

[lady_t]

@petricia Money market funds are essentially very short term, very high credit end of the spectrum. Essentially cash savings account safety.

 

[simon84]

@petricia By law, SEC yields are always calculated including the reduction for expenses.

I would assume that all yields are calculated this way, but I was able to quickly check the SEC yield definition.