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

Discussion in 'Financial Planning' started by BreadWithSpam@fractious.net, Apr 29, 2011.

  1. Guest

    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/SB10001424052748704473104576293063576172904.html?mod=djintinvestor_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.
     
    , Apr 29, 2011
    #1
    1. Advertisements

  2. On 4/29/2011 6:16 PM, 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/iippdf/pdfs/IO119.pdf


    > http://online.wsj.com/article/SB10001424052748704473104576293063576172904.html?mod=djintinvestor_t
    >
    > How Inflation-Protected Funds Get to Inflate Their Yields
    > By JASON ZWEIG
     
    Mark Freeland, Apr 30, 2011
    #2
    1. Advertisements

Want to reply to this thread or ask your own question?

It takes just 2 minutes to sign up (and it's free!). Just click the sign up button to choose a username and then you can ask your own questions on the forum.
Similar Threads
  1. Tom Hickman

    Sec 179 on a Sec 743b adjustment?

    Tom Hickman, Feb 18, 2004, in forum: Tax
    Replies:
    0
    Views:
    810
    Tom Hickman
    Feb 18, 2004
  2. Phil Schuman

    bonds - graphing yields vs price

    Phil Schuman, Oct 29, 2006, in forum: Quicken
    Replies:
    0
    Views:
    279
    Phil Schuman
    Oct 29, 2006
  3. J. Clark

    'Pay Sales Tax' yields no options

    J. Clark, Oct 27, 2005, in forum: Microsoft Accounting
    Replies:
    6
    Views:
    214
    Allan Martin
    Oct 28, 2005
  4. John
    Replies:
    1
    Views:
    206
    Michael Gordon, MVP
    Jan 3, 2004
  5. Anom
    Replies:
    0
    Views:
    219
Loading...

Share This Page