Estimated Long-Term Return

Estimated long-term return is a hypothetical measure providing investors with an estimated expectation for the return they can expect over the life of an investment. It is most often quoted in investments with fixed income securities and a fixed duration.

Estimated long-term return is a metric that provides investors with a return estimate they can expect when investing in a fund over a long-term timeframe. 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 be able to arrive at this calculation because the underlying fund investments have a specified return that is given at the time of initial investment.

Many fixed income funds may choose to disclose estimated long-term return in their registration documentation and marketing materials. Proposals have also been made to provide this information in the Form S-6, which is the registration statement filing for unit investment trusts, though no final rules have been dispersed.

Unit investment trusts, and specifically UIT portfolios with a high allocation to fixed income investments, can provide an ideal vehicle for 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 created through a trust structure and issued with a fixed maturity date. In the fixed income realm these investments can be a good 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 low risk fixed income investments.

The estimated long-term return is typically calculated as an annual percentage return over a specified timeframe. It is often presented net of estimated fees. In fixed income portfolios it can easily be based on the yields of all the underlying securities in a portfolio. In this case, it is usually weighted to account for each security's market value and maturity.

The estimated long-term return can be a helpful point of consideration when planning on investing in a fixed income product over the long-term. It can give a fairly 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, with some adjustments.