What is mutual fund performance?

Mutual fund performance measures the income performance of a mutual fund. It is calculated by dividing the annual dividend payment by the value of a mutual fund’s shares. Mutual fund returns vary based on the market value of the fund and changes in the annual dividend distribution.

Mutual fund performance is usually calculated daily with the value of the fund net asset value (NAV), which is determined after market close each day.

Key points to remember

  • A mutual fund’s yield refers to the income returned to its investors in the form of interest and dividends generated by the fund’s investments.
  • Mutual fund performance is expressed as a percentage based on the amount of income per share divided by the net asset value of the share.
  • Fund managers may use a variety of methods to calculate the fund’s return that investors see, and so potential investors should consult the fund’s prospectus to see how the figure is arrived at.
  • High-yield mutual funds can be attractive to investors looking for higher returns, but it could also indicate that the fund holds riskier assets than you might be comfortable with.

Understanding Mutual Fund Performance

Mutual fund performance can be a top metric for income investors. Mutual fund return calculations generally include any type of income paid out by a mutual fund over a one-year period. The mutual fund’s dividend distribution is determined by the board of directors, which approves and publishes the distribution to investors.

All types of mutual funds pay dividend distributions. In an equity mutual fund, the distribution is generally taken from the dividends paid by the actions in the wallet. In a bond mutual fund, the dividend distribution often includes interest paid on obligation portfolio investments. Investors looking for high yield mutual fund investments have a wide range of options to choose from in the investment market.

Mutual fund performance is often quoted as a term yield or a year-over-year yield. The forward yield of the mutual fund multiplies the most recent dividend distribution by the fund’s expected one-year dividend schedule. Trailing 12-month dividend yield is the sum of dividends paid over the past 12 months divided by the value of a mutual fund share. Mutual funds often pay monthly or quarterly distributions.

Investors in high-yield mutual funds should also pay close attention to their fund’s performance calculations. Different performance reporting sources may use different methodologies. For a comprehensive assessment of fund performance, investors can use full return. Different from the standard return, the total return takes into consideration all dividend distributions paid to the fund.

Example of fund performance

Suppose a mutual fund has a current market price of $20 per share and has paid $0.04 in monthly dividends over the past year. The return of the mutual fund over twelve months would be calculated by dividing the annual dividends paid by the share price. So the return would be $0.48 ÷ $20 = 0.024, or 2.4%.

Now consider the forward yield of mutual funds. Suppose the mutual fund has a current price of $20 but the mutual fund has just increased its monthly dividend to $0.05. The forward yield of the mutual fund would be calculated by dividing the expected annual dividend of $0.05 x 12 by the share price. Thus, the forward yield would be $0.60 ÷ $20 = 0.03 or 3%.

Some high yield mutual funds

Investors have a wide range of income-producing mutual funds to choose from in the investment market. Below are examples of top performing mutual funds.

Vanguard Dividend High Yield Index Fund (VHYAX)

The Vanguard High Dividend Yield Index Fund is an index fund. It seeks to track the holdings and performance of the FTSE High Dividend Yield Index. As of December 31, 2020, its 30-day SEC dividend yield was 3.16%.

T. Rowe Price Emerging Markets Bond (PREMX)

The T. Rowe Price Emerging Markets Bond Mutual Fund invests in bonds from emerging countries. As of January 26, 2021, its 30-day SEC Normalized Yield was 4.05%.

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