Charles Schwab & Co., potentially embarking on a new investment era, last week said it will introduce on Oct. 1 YieldPlus, a mutual fund that will in part invest in asset-backed securities.
The venture marks the first-time Schwab has scaled down the credit. According to a source at the company, investors plan to devote 15% to 20% of the fund's capital specifically to ABS ventures.
"Between mortgage-backed securities and asset-backed securities, it could be between 30% and 40%," the source said, adding that ABS investing could begin as early as the first week of October.
"There's not actually specific goals in terms of industries," the source said. However, the fund is looking to invest in asset-backeds with short maturities. "The idea is low price volatility."
Though Schwab only hopes to raise roughly $100 million by the end of the month, the plan, over time, is to lure investors from some of the less risky money-market funds that make up Schwab's $66.8 billion fund portfolio.
"We expect there to be some movement over to the YieldPlus fund," the source said.. "We hope it gets really big."
The YieldPlus fund is a step away from Schwab's usual money-market funds, dealing with slightly larger risks and more diversity. Until now, Schwab's investment strategists have shied away from asset-backeds outside the commercial-paper market, and have focused primarily on commercial mortgage-backed securities.
YieldPlus, however, will tread riskier ground, the source said, with as much as 25% expenditure in "noninvestment grade" bonds. A double-B rating is the lowest the fund will invest in, according to the prospectus.
Still, the managers of the YieldPlus fund don't categorize it as high risk, but rather "an alternative from a money market fund," said our source, with an average life of investments at one year or less. The goal, according to the prospectus, is to "help maintain a high degree of share price stability" and "enhance its potential yield."