Estimated Long-Term Return

What Is Estimated Long-Term Return?

Estimated long-term return is a speculative measure that forecasts an investor's expected return over the life of an investment and is commonly quoted for fixed-income investments with a fixed duration.

Understanding Estimated Long-Term Return

Estimated long-term return is a metric that provides investors with a return estimate they can target while investing in a fund over a long-term time period. This measure can be comparable to a savings account rate or the rate of interest quoted for a certificate of deposit. Generally, fund managers reporting estimated long-term return will actually want to show up at this calculation because the underlying fund investments have a specified return that is given at the hour of initial investment.

Many fixed-income funds might choose to disclose estimated long-term return in their registration documentation and marketing materials. Proposals have also been made to give this information in the Form S-6, which is the registration statement filing for unit investment trusts (UIT), however no last rules have been dispersed.

Unit investment trusts, and specifically UIT portfolios with a high allocation to fixed-income investments, can give an ideal vehicle to estimated long-term return disclosure. These investments are one of three formal investment companies regulated by legislation from the Investment Company Act of 1940. These investments are made through a trust structure and issued with a fixed maturity date. In the domain of fixed income these investments can be a decent alternative to high-yield savings accounts and certificates of deposit.

Overall, estimated long-term return disclosure can be a marketing measure, easily quoted by fixed-income funds, that can increase marketability. Most funds will have a higher estimated long-term return than high-yield savings accounts or certificates of deposit which can draw investors seeking okay fixed-income investments.

Estimated Long-Term Return Calculation

Commonly, the estimated long-term return is calculated as a yearly rate of return throughout a specified time period. It is in many cases presented net of estimated fees. In fixed-income portfolios it can easily be based on the yields of the multitude of underlying securities in a portfolio. In this case, it is usually weighted to account for every security's market value and maturity.

The estimated long-term return can be a useful point of consideration while planning on investing in a fixed-income product over the long term. It can give a genuinely accurate estimation of the return on the portfolio. It is also similar to the yield to maturity measure of a single bond extended to a portfolio, for certain adjustments.

Highlights

• Estimated long-term return can be comparable to a savings account rate or the rate of interest quoted for a certificate of deposit.
• Normally, the estimated long-term return is calculated as a yearly rate of return throughout a specified time span and is in many cases presented net of estimated fees.
• Estimated long-term return is a speculative measure that forecasts an investor's expected return over the life of an investment and is commonly quoted for fixed-income investments with a fixed duration.