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Yield Tilt Index Fund

What is 'Yield Tilt Index Fund'

A type of mutual fund that allocates capital as a standard index, by replicating the holdings of a specified stock index, such as the Standard & Poor's 500 Index (S&P 500), except that the fund weights its holdings towards stocks that offer higher dividend yields. Stocks with higher dividend yields are given a greater portfolio weighting, making them represent more of the fund's portfolio than they otherwise would in the standard index.

Explaining 'Yield Tilt Index Fund'

The rationale behind the creation of yield tilt index funds is based on the fact that dividend payments issued to shareholders can be subject to "double taxation", meaning that they are taxed once at the corporate level and then once again at the shareholder level.

Due to this effect, some investors contend that the market must value the share prices of high-yield stocks at somewhat of a discount to other stocks, so as to provide an increased return on high-yield stocks in order to compensate for the negative tax effects. The theory is that an investor who is able to purchase a yield tilt index fund in a tax-sheltered investment account may be able to outperform the index, since they receive the supposed valuation benefit but are sheltered from taxes on the dividends they receive.


Further Reading


A macro‐finance model of the term structure, monetary policy and the economy
academic.oup.com [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

What moves sovereign bond markets? The effects of economic news on US and German yieldsWhat moves sovereign bond markets? The effects of economic news on US and German yields
papers.ssrn.com [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

A re-examination of the predictability of economic activity using the yield spreadA re-examination of the predictability of economic activity using the yield spread
www.nber.org [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

Reaching for yield in corporate bond mutual fundsReaching for yield in corporate bond mutual funds
academic.oup.com [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

The fantastic world of finance: Progress and the free lunchThe fantastic world of finance: Progress and the free lunch
www.jstor.org [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

Islamic mutual funds' financial performance and international investment style: evidence from 20 countriesIslamic mutual funds' financial performance and international investment style: evidence from 20 countries
www.tandfonline.com [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

On the economic consequences of index-linked investingOn the economic consequences of index-linked investing
www.nber.org [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …

Risk and return: A new lookRisk and return: A new look
www.nber.org [PDF]
… Glenn D. Rudebusch, Tao Wu, A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy, The Economic Journal, Volume 118, Issue 530, 1 July 2008, Pages 906–926, https://doi.org/10.1111/j.1468-0297.2008.02155.x. Download citation file …



Q&A About Yield Tilt Index Fund


What is a yield tilt index fund?

A type of mutual fund that allocates capital as a standard index, by replicating the holdings of a specified stock index, such as the Standard & Poor's 5 Index (S&P 5), except that the fund weights its holdings towards stocks that offer higher dividend yields. Stocks with higher dividend yields are given a greater portfolio weighting, making them represent more of the fund's portfolio than they otherwise would in the standard index.

Why was this type of mutual fund created?

The rationale behind the creation of yield tilt index funds is based on the fact that dividend payments issued to shareholders can be subject to "double taxation", meaning that they are taxed once at the corporate level and then once again at the shareholder level. Due to this effect, some investors contend that the market must value the share prices of high-yield stocks at somewhat of a discount to other stocks, so as to provide an increased return on high-yield stocks in order to compensate for these negative tax effects. The theory is that an investor who is able to purchase a yield tilt index fund in a tax-sheltered investment account may be able to outperform their regular counterparts due to receiving what should be considered discounted shares while still being sheltered from taxes on dividends received.

What does the term "yield" mean in finance?

Yield refers to the rate of return on an investment, usually expressed as a percentage.

What are some different types of yields?

There are various types of yields, including dividend yield and bond yield.

What is the yield tilt index fund?

The yield tilt index fund is a type of mutual fund.

How do you calculate bond yield?

You calculate bond yield by dividing the coupon payments over a period by the current market value of the security.

Who might benefit from using this type of mutual fund?

Investors who want exposure without paying double taxation might find this useful for their portfolios.

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