Fund Times: Schwab Bond Fund Suffers Mass Exodus
Plus, changes at Neuberger Berman and Payden & Rygel, and more.
Ultra-short bond fund Schwab YieldPlus (SWYPX) is the latest victim of the credit crisis. It has fallen 16.8% for the year to date through March 26, ranking dead last in its category, and as a result, investors have been fleeing the fund. Assets have fallen precipitously from a high of $13.5 billion in June 2007 to just $2.5 billion as of March 20.
The fund's sizeable loss in recent months is certainly shocking, as ultra short-term fixed-income securities are generally perceived to be safe investments with minimal interest-rate and credit risks. The fund first showed signs of distress last summer when subprime mortgage woes caused market liquidity to dry up. Lead manager Kimon Daifotis has taken on slightly more credit risk than his category peers and kept the portfolio heavily invested in corporate and nonagency mortgage bonds, with a small exposure to subprime-backed bonds. These securities took a sizeable hit, and the fund proceeded to lose 3.6% in the latter half of 2007. That was enough to send investors heading for the exits, and it appears that management was forced to sell bonds at depressed prices to meet redemptions. Because many of the fund's losses are already locked in, the chance of a rebound is slim.
Things aren't looking up for another Daifotis charge either. Schwab California Tax-Free YieldPlus (SWYCX), an ultra-short single-state muni fund, has also lost 8.8% for the year to date through March 26. According to a note on Schwab's Web site, the fund's exposure to variable-rate bonds pegged to the London Interbank Offering Rate contributed to decline. Demand for these bonds has decreased dramatically amid the ongoing liquidity crisis, causing their prices to drop. And because they tend to lag when short-term rates fall, the decline in LIBOR since December hasn't helped either. The fund's assets now stand at less than $600 million, compared with the mid-2007 level of $1.1 billion.
Neuberger Berman Fasciano to be Merged Away
On March 20, 2008, Neuberger Berman replaced Neuberger Berman Fasciano's (NBFSX) manager Michael Fasciano with the team at Neuberger Berman Genesis (NBGNX). The fund will be merged into Genesis, but a time table has not yet been set. Fasciano's departure also affects the Fasciano Portfolio, a variable income trust. It is now managed by David Burshtan of Neuberger Berman Small Cap Growth (NBMIX) and has been renamed as the Small-Cap Growth Portfolio.
Fasciano's dismissal is rather unexpected as he has been at the helm of his namesake fund for close to 20 years, eight of which were under the Neuberger Berman brand. Though performance from 2003 to 2007 has been lackluster relative to its small-growth peers, we still liked the fund and management's valuation-conscious approach. What's more, relative performance has turned around in recent months, so now seemed like an odd time for the firm to throw in the towel.
However, the fund's shareholders will be in good hands. The Genesis team is experienced and proven. It also adheres to a strategy that's similar to Fasciano's.
Payden & Rygel Shuffles Bond Managers
Payden Limited Maturity (PYLMX) has had its fair share of mortgage-related missteps, which have led the ultra-short bond fund to stumble in 2007 and for the year to date. As a result, Payden & Rygel recently replaced managers James Sarni and Colleen Ambrose with Mary Beth Syal and David Ballantine. Sarni has taken over Payden Core Bond (PYCBX), and Ambrose has left the firm. We're currently reevaluating the fund's status as a Fund Analyst Pick.
American Century Muni Manager Hits the Road
Lead manager Robert Miller of American Century Tax-Free Bond (TWTIX) recently left the firm to pursue other opportunities. Even though the fund is team-managed (with two comanagers and three dedicated analysts staying put), Miller's departure represents a significant loss. He has done well during his tenure here and previously at American Century California Tax-Free (BCITX).
Schneider Reopens Small-Cap Value Fund
Schneider Small Cap Value (SCMVX) will accept assets from new investors starting April 8, 2008. It has experienced net redemptions in recent months, as longtime manager Arnie Schneider's mortgage-related picks have suffered huge losses and dragged down returns. However, the fund remains one of our favorites in the small-value category, as Schneider has demonstrated his approach has an edge over the long haul. Investors interested in adding small-value exposure should move quickly because the window of opportunity may be brief. When the fund opened its doors in January 2006, it closed in less than a month as assets quickly reached Schneider's then maximum of $100 million.
Wenli Tan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.