SAN FRANCISCO - Charles Schwab & Co. is the latest money manager to get into the index fund price war.
SchwabFunds announced a new, much cheaper class of shares, Select Shares, for its four index funds. The shares are available to individual investors with an initial investment of at least $50,000 or for financial planners who purchase at least $2 million of the Select Shares for their clients.
The Select Shares of the Schwab S&P 500 Fund carry a total expense ratio of 19 basis points, which matches the discounted total expense ratio Fidelity Investments introduced in April for its S&P 500 index funds. The Vanguard Group of Investment Cos. charges a total expense ratio of six basis points for its institutional S&P 500 fund and 20 basis points for the retail version.
The Select Share price for the Schwab S&P 500 fund is a significant discount on the 35-basis-point total expense ratio charged for Schwab's Investor Share class for the same fund. The Select Shares expense ratios for Schwab's three other index funds are 11 or 12 basis points below what is charged for the Investor Share class. The total expense ration for the Schwab 1000 Fund is 35 basis points; 38 basis points for the Schwab Small-Cap Index Fund; and 47 basis points for the Schwab International Index Fund.
Schwab guarantees the total expense ratios for these shares of its index funds through Feb. 29, 2000.
NEW YORK - The second quarter was "extraordinary" for stock mutual funds, according to data from Lipper Analytical Services Inc. In fact, equity mutual funds collectively had their best single quarter performance since the first quarter of 1991.
The average general equity fund in the Lipper fund universe returning 15.4% for the second quarter; in the first quarter of 1991, the average general equity fund returned 17.8%.
All equity investment categories were up, except gold and Canadian funds. The leading category for the quarter was Japanese funds, which surged from a virtually flat five-year performance to an average 20%. Latin American funds followed closely, with a quarterly average return of 19.2%. Micro-cap funds returned an average of 17.6%, besting the S&P 500 return of 17.3% for the second quarter. Small-cap funds tailed very closely, with an average return of 17.1%. World equity funds outperformed general equity funds in the first quarter and did well on average in the second, but at 10.1% still trailed general equity funds. The Lipper Growth Fund Index rose 15.8%.
American Century Investments, Kansas City, Mo., introduced a real estate fund subadvised by RREEF Real Estate Securities Advisers.
American Century acquired the assets of RREEF Real Estate Securities Fund, $25 million, and renamed the fund the American Century Real Estate Fund.
Kim Redding and Karen Knudson of RREEF will continue to manage the fund, which invests entirely in publicly traded REITs.
Phoenix Duff & Phelps, Hartford, Conn., soon might replicate the investment style it uses in managing two of its retail international equity funds for institutional separate accounts. The company also will likely establish institutional versions of the Phoenix-Aberdeen New Asia and Global Small Cap mutual funds, said Barbara McLaughlin, a company spokeswoman. The funds are a joint venture between Phoenix Duff & Phelps and Aberdeen Trust, Aberdeen, Scotland.
Bankers Trust Co., New York, introduced the BT Institutional International Equity Fund, targeted to large defined contribution plans. Using a Hub & Spoke structure, the fund will invest in the same master fund as the bank's existing retail version of the fund.
There are two institutional share classes, which offer significantly better expense ratios than the retail share class. For plans with more than $10 million to invest, pricing is 95 basis points. For funds with more than $50 million, the price drops to 75 basis points. The retail fund carries a 150-basis-point charge.
Bankers Trust introduced the institutional fund at the request of large defined contribution plan sponsors, which were interested in the retail fund's very high performance, said Robert Reiner, portfolio manager of the fund. The fund beat 98% of all other international equity funds for the three-year period ended Dec. 31 and has a five-star rating from Morningstar Inc. The fund's two other portfolio managers are Michael Levy and Julie Wang.
Fidelity Investments, Boston, will begin to sell its mutual funds directly to the Japanese market next year. Fidelity just received a license from the Ministry of Finance for its Japanese brokerage unit that would allow it to deal directly with institutional and individual investors. Without the license for its brokerage unit, Fidelity has been restricted to selling its mutual funds through Nomura Securities and Nikko Securities.
The Fidelity brokerage unit also will offer traditional stock brokerage services. The company reportedly is considering the establishment of a bank distribution channel for its funds.