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SEC yields "are like the square root of negative-1 in algebra"

 
 
BreadWithSpam@fractious.net
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      04-29-2011, 10:16 PM

I really liked that quote from Frank Fabozzi in this
Intelligent Investor column by the always-worth-reading
Jason Zweig:

http://online.wsj.com/article/SB1000...jintinvestor_t

How Inflation-Protected Funds Get to Inflate Their Yields
By JASON ZWEIG

-snip-
Among the 173 TIPS mutual funds tracked by Morningstar, the reported
"SEC yields" as of March 31 ranged from minus-0.77% to 5.58%, with 12
funds yielding at least 5%. Four of the seven exchange-traded funds that
specialize in TIPS displayed yields greater than 5%, with Pimco 15+ Year
U.S. TIPS Index leading the pack at 6.07%.

Yet no TIPS yield more than 1.75%. How could anyone but an alchemist
generate 5% or more out of 1.75% or less?
-snip-

Worth reading.



--
Plain Bread alone for e-mail, thanks. The rest gets trashed.

 
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Mark Freeland
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      04-30-2011, 01:25 PM
On 4/29/2011 6:16 PM, (E-Mail Removed) wrote:
>
> I really liked that quote from Frank Fabozzi in this
> Intelligent Investor column by the always-worth-reading
> Jason Zweig:


I was not aware that funds differed in the way they treated the
inflation adjustment in calculating TIPS SEC yield. Definitely worth
the read. Thanks.

And I agree that the quote is cute. I do, however, disagree with the
rest of the quote: "They give you an imaginary number".

I would rather say that SEC yields enhance the richness of financial
numbers in much the same way that adding i closes the field of real numbers.

(See Algebraically Closed Fields:
http://en.wikipedia.org/wiki/Algebraically_closed_field)

TIPS inflation value adjustments are anything but imaginary - just ask
the IRS if you hold TIPS in a taxable account. (Phantom, yes;
imaginary, no - perhaps a distinction without a difference :-) But if
you own a TIPS fund, you receive real (not imaginary, not phantom) cash
dividends for that inflation adjustment.

From Vanguard's Inflation-Protected Securities Fund Prospectus:
"A mutual fund holding [Inflation-Indexed Securities] pays out ... the
income attributable to principal adjustments each quarter in the form of
cash or reinvested shares, and the shareholders must pay taxes on the
distributions."
https://institutional.vanguard.com/i...pdfs/IO119.pdf


> http://online.wsj.com/article/SB1000...jintinvestor_t
>
> How Inflation-Protected Funds Get to Inflate Their Yields
> By JASON ZWEIG


 
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