High Level Rules: 250) Distribution Yield vs Total Return

250) Distribution Yield vs Total Return

Have you wondered what are the differences between Distribution yield and Fund Performance?

There had been many confusion between Distribution Yield and Fund Performance. Both percentages are available in fund reports and that creates more confusion to those who are not aware of the differences.

Let us start with a simple case study.
Assume no charges for simplicity.

15 Jan 2019 unit price = $1.05
15 Jun 2019 unit price = $0.80
30 & 31 Dec 2019 unit price = $1.00
1 Jan 2020 unit price = $1.00

Adam invested $1,000 on 15 Jan at $1.05 per unit and has 952.38 units.
Bill invested $1,000 on 15 Jun at $0.80 per unit and has 1,250 units.
Charles invested $1,000 on 30 Dec (before distribution) at $1.00 per unit and has 1,000 units.

On 31 Dec, the fund price per unit is $1.00.
The fund declared distribution of $0.10 per unit.

Distribution yield
= Distribution amount / Unit Price after distribution
= 0.10/(1.00-0.10)
= 0.10/0.90
= 11.11%

Now, let's look at what the investors will receive as their distribution payout.
Distribution = $0.10 per unit.

Adam: 952.38 units x $0.10 = $95.24
Bill: 1,250 units x $0.10 = $125
Charles: 1,000 units x $0.10 = $100

What is the return from the distribution?
Return from Distribution = distribution payout/Investment

Adam: $95.24/$1,000 = 9.52%
Bill: $125/$1,000 = 12.5%
Charles: $100/$1,000 = 10%

What about the remaining Asset Value of the investors in their funds?
After distribution, the unit price is $1.00 - $0.10 = $0.90

Adam: 952.38 units x $0.90 = $857.14
Bill: 1,250 units x $0.90 = $1125
Charles: 1,000 units x $0.90 = $900

What are the investors' investment Total returns?
Total Return = (End Value - Begin Value + Distribution)/Begin Value

Adam: ($857.14 - $1,000 + $95.24)/$1,000 = -4.76%
Bill: ($1,125 - $1,000 + $125)/$1,000 = 25%
Charles: ($900 - $1,000 + $100)/$1,000 = 0%

This is to show that the distribution yield is at 11.1% for all investors.
However, only Bill made positive returns because he invested when the unit price was lower.
Even though Adam received distribution, he still lost 4.76%.

What if all reinvested their distributions?
All will have extra units in their investment.

Adam: $95.24/$0.90 = 105.82 units
Bill: $125/$0.90 = 138.89 units
Charles: $100/$0.90 = 111.11 units

New Total units
Adam: 952.38 + 105.82 = 1,058.20 units
Bill: 1,250 + 138.89 = 1388.89 units
Charles: 1,000 + 111.11 = 1,111.11 units

What if another investor, Darren, invested $1000 on 1 Jan 2020 (after distribution).
How many units will he gets?

Darren: $1,000/$0.90 = 1,111.11 units

Therefore, there is no difference between Charles (invested before distribution) and Darren (invested after distribution). Both will have 1,111.11 units each.

Below is the Summary in a Table format.