“Yield” refers to the rate of return on an investment and is calculated as the income earned divided by the amount invested. When you buy, say, a term deposit, this is straight forward. You invest $10,000 for a year and receive $500 at the end, for a yield of 5%, plus the return of your original $10,000.

However, with a trust unit, both the numerator and denominator of the yield equation have “catches”. In looking at the “total return”, the income “numerator” will consist of the actual cash received during the year. In fact, it is common that some of the monthly payout includes return of capital and therefore should not be included in the numerator but a reduction in the denominator. Second, and more important, the value of the unit trust changes on the stock market on any given day, just like a stock. Therefore, at the end of a year, the income numerator needs to include any increase or decrease in the value of the unit.

Let’s have a look at the return on an investment in Canadian Real Estate Investment Trust (REF.UN), a diversified portfolio of Canadian office, industrial and retail properties:

Unit Price Start of year
Annual Distribution

 Taxable Amount

Yield*

Total Annual Return**
 1996

 $9.38

 $.0.91

 $0.04

 9.7%

 41.8%

 1997

 $12.90

 $1.03

 $0.36

 8.0%

 1.3%

 1998

 $12.70

 $1.14

 $0.44

 9.0%

 -14.3%

 1999

 $10.55

 $1.17

 $0.27

 11.1%

 6.9%

 2000

 $10.95

 $1.17

 $0.53

 10.7%

 10.0%

 2001

 $11.45

 $1.17

 $0.45

 10.2%

<P
align=center> 15.9%

* Yield is the Annual Unit Distribution divided by Unit Price at the beginning of the year.

** Total return takes into account cash distributions (taxable portion and return of capital portion) and annual change in unit price—this total return is before personal income taxes are taken into account.

As you can see in the table, the yield can be very smooth and attractive. However, it is not the benchmark against which to assess your investment and to compare to other investment vehicles. The total annual return is more valid, and you can see that it fluctuates severely. This is not covered particularly in the financial press and the financial services industry tends to promote the yield, not the total annual return. So, caveat emptor!