Have you ever researched a mutual fund and seen the trailing 12-month yield (TTM) shown on a summary or report? This number represents the average of the returns over the last 12 months.
When you want to know the average returns of a stock, bond, mutual fund, or exchange-traded fund (ETF), you can use the TTM to see how it has done. But what does this mean, and how does it help you as an investor?
Learn more about the TTM and how to use it when looking at a stock, bond, or fund.
- A trailing 12-month yield (TTM Yield) refers to the fund's average returns over the past 12 months.
- You can find the TTM Yield by taking the weighted average of the returns of the holdings that are in the mutual fund or ETF.
- In many cases, the SEC Yield is a better way to guess the future returns on a mutual fund.
- The TTM is a good way to see how a fund has done over the last 12 months, but doesn't help with forecasting.
TTM Yield Definition and Calculation
The trailing 12-month yield is the average returns a fund gave over the past 12 months. This differs from the returns one stock gives. Returns on single stocks are calculated by dividing the total returns the stock paid out by the stock's market price.
To get the TTM this way, you need to add 12 months' worth of returns for each type of holding that is in the fund. Then, multiply each total by the percent of the fund that type makes up. Add the results, and you have the trailing 12-month yield of the fund.
|Type||12-Month Returns||Percent Held in Fund||Weighted Return|
|TTM/Weighted Average Return||$170|
You can also use the distribution yield formula the rating and research giant Morningstar uses. Add all of the fund's returns over the last 12 months. Then, add the fund's ending net asset value (NAV) from the last month and the total capital gains from the last 12 months. Divide the returns by this number, and you get the ratio of the fund's returns to its value.
How to Analyze a Mutual Fund's TTM Yield
The TTM gives recent data from a fund's average returns and interest payouts. For instance, say you're looking at a fund, and you see that its TTM Yield is 3.00%. You know that this is an average, so you can tell that the fund would average $3,000 for every $100,000 you had in it over the last 12 months.
With this method, you've only seen the average returns for the last year. Using the TTM, there is no way of telling how the fund will do in the future. No fund has the same returns every year; it is highly unlikely that TTM results will be the same because there are too many factors that affect returns. Therefore, the TTM shouldn't be used to pick a fund unless you're using it along with other ratios to compare funds.
The SEC yield is another way to see how a fund is doing. You can use the SEC Yield as a way to try and guess the near future returns if market conditions remain the same. The SEC Yield uses returns from the previous month to achieve the result.
This means that it is a much more recent picture of a fund's current returns. It can also give you an idea of how it might perform over the next 30 days if all other market factors remain the same.
Outlook on Yields for Bond Funds
Returns from stock and bond funds have been fairly low in recent times. Therefore, it is likely that the long-term trend would be for rates and returns on bonds to rise from these lows.
It is worth noting that bond returns are also subject to many factors. Bond fund returns rose in 2018 but dropped in 2019; they dropped significantly in 2020. In the first half of 2021, returns began to climb back up to pre-pandemic levels.
Most of the time, the people looking at trailing 12-month fund returns are searching for steady income rather than growth. The TTM is one way you can see how a fund has performed over 12 months.
If you're looking for a way to estimate the returns a specific fund will give you over time, the TTM is not a reliable way to gauge your future returns. The fund can go through portfolio changes, or the underlying stock prices could drop. When used with other ratios and measurements, the TTM can help you decide whether a fund is worth buying.