The sharks are circling around Charles Schwab
Schwab YieldPlus
If shareowners are peeved to find that the fund's monthly income wasn't enough to offset its decline in NAV last year -- with its total return off by 1.3% in 2007 -- they'll positively lose it by the end of this quarter.
Through yesterday, the fund's NAV had fallen by 17.1% this quarter -- a total drop of 16.2%, once you tack on a pair of $0.04-a-share monthly distributions. It would take roughly three years of dividend checks to offset what the fund has relinquished in less than three months, and that's assuming a stable share price and monthly dividend.
It's easy to see why the lawyers are drooling, and why the fund's days are numbered. Since its inception in 1999, the fund's annualized return was an already-anemic 3.4% through the end of last year. That figure will get crushed once the returns are updated next week to include this bloodied quarter.
The fund is unlikely to survive at that point, for several reasons:
- How do you market historical returns when they become hysterical returns?
- Can Schwab afford to have its brand name attached to a stinker?
- The fund's asset base has shrunk from roughly $13 billion in May to $2.5 billion. Those defections will likely continue once the last of the bagholders realizes how quickly this presumably "low risk" investment gets tagged as a "high risk" vehicle by Morningstar in Schwab's own fund information page.
Chasing yields can be a dangerous pastime. Just ask income-happy investors who hopped onto shares of companies like Thornburg Mortgage
This is an important lesson, especially now that the Fed's string of rate cuts makes it ever harder to find a place to park cash. One can only imagine the calamitous outrage that would break out if money market funds, typically pegged to a steady $1 NAV, began to break the buck. It's only happened once -- to a tiny fund 14 years ago -- but heavies like Bank of America
For risk-averse investors -- those who falsely believe that they're savers, when they're ultimately investors -- that space beneath the mattress is starting to look like a pretty appealing free parking space.