Yield Tilt Index Fund

  

Categories: Bonds, Investing, Econ

Imagine rides at theme parks with the word “tilt” in them, because that’s what the yield tilt index fund does.

Yield tilt index funds copycat the security holdings of a standard stock index (like the S&P 500 or the DJIA), except that they tilt the weight towards stocks with the higher dividend yields.

Basically, they’re mutual funds with high yields that follow the lead of an index of sorts. Living that tilt life is the sweet life of dividends. Rich people in particular favor yield tilt index funds, because they can buy one in a super-shiny tax-sheltered investment account, paying less in taxes and getting more money (since dividend payments to shareholders are taxed double).

Related or Semi-related Video

Finance: What is Spread To Treasuries?3 Views

00:00

Finance allah shmoop what is spread to treasuries All right

00:08

all right close that play bond magazine there people The

00:11

answers are all right here Spread to treasuries is not

00:15

a type of you know art photo but rather it's

00:18

an indication of risk associated with a given debt or

00:21

bond offering In the investing world Everything is calculated as

00:25

some additional premium or additional cost or additional capital rental

00:31

percentage all tact on to the safest investment in the

00:35

world Things from the us treasury like t bills and

00:39

bonds stuff like that from treasury We'll think about it

00:42

like you're going to a restaurant looking at the dinner

00:45

salad there for three bucks It's the cheapest thing on

00:48

the menu if you wanted a steak Well that state

00:51

costs fif eighteen dollars but it's a spread or premium

00:55

to the dinner salad of twelve bucks right Three bucks

00:58

for the south and you'd have to add twelve from

01:00

state prize You get stick And if you really wanted

01:03

to just use smaller numbers so that your customers would

01:06

have the illusion that they were paying fewer box for

01:09

dinner well you could describe everything in your restaurant as

01:12

some spread to dinner salad such that this medium rare

01:16

rib eye was in fact simply a spread to salad

01:19

or premium of twelve bucks Even though you're paying fifteen

01:23

anyway Us treasuries air broadly considered to be the safest

01:27

bond bet in the world at least today until china

01:30

or robots or both take everything over So when a

01:33

bond offering is made it is priced relative to treasuries

01:37

in the same way dinner items would be priced relative

01:41

to that dinner salad house salad there with the oil

01:44

and vinegar dressing that is if the bond offering is

01:47

for say ten years than the u s treasury ten

01:50

year paper that moment would be the foundational elements against

01:54

which their risk your debt instruments would then be priced

01:58

So let's say that today that ten year treasury paper

02:02

is yielding three point two percent Caterpillar tractor wants to

02:05

borrow a billion dollars to build their new tractor smelting

02:09

plant there then offered by investors one hundred twenty basis

02:13

point spread to treasuries debt deal to a fund that

02:17

factory with a billion dollars of debt What does that

02:19

mean It means that lenders are willing tto loan caterpillar

02:23

A billion dollars payable in ten years at three point

02:27

two percent per year plus one point two percent for

02:30

total interest of four point four percent interest per year

02:35

You know take it or leave it That's it So

02:37

to recap this is play bond magazine and this is

02:40

play But magazine reads it for the articles Really weird

Up Next

Finance: What is an Accumulated Dividend?
9 Views

What is an Accumulated Dividend? Accumulated dividends are dividends paid on cumulative preferred stock. They are referred to as accumulated becaus...

Finance: What is Dividend Yield?
4 Views

What is Dividend Yield? Similarly to how a bond’s price and coupon is calculated to determine yield, dividend paying stocks also have a yield asc...

Finance: What is Dividend Coverage/the Dividend Payout Ratio?
7 Views

What is Dividend Coverage/the Dividend Payout Ratio? The Dividend Cover ratio is the factor by which a company can overpay its dividend when its ne...

Find other enlightening terms in Shmoop Finance Genius Bar(f)