Inflows into CDs, money market funds and ultra-short bond funds climb
SAN FRANCISCO, Aug. 1 /PRNewswire-FirstCall/ -- Reflecting the appeal
of rising interest rates and the use of cash as a strategic investment to
improve overall portfolio stability and performance, clients of Charles
Schwab & Co., Inc. have demonstrated increasing interest in what has long
been a second class citizen in the investing world -- cash and cash-like
fixed income products. Client assets in short-term CDs, for example, grew
93 percent from June 30, 2005 to June 30, 2006.(1)
"We're seeing a shift in investor sentiment from thinking of cash as an
idle deposit to using it as a strategic investment," said Charles R.
Schwab, Schwab founder and CEO. "Given current interest rates and a
volatile stock market, investors are looking at cash in the context of
their overall portfolio, and actively using it as a diversifying
investment, not just a parking spot while they investigate other options."
At the end of June, client assets in short-term CDs (maturities one
year or less) purchased through Schwab's CD OneSource(TM) platform had
reached $12.7 billion compared to $6.6 billion at June 30, 2005. An open
marketplace of CDs, Schwab's CD OneSource allows clients to purchase CDs of
varying maturities from dozens of competing banks around the U.S., right
within their Schwab brokerage accounts. In July, purchases of short-term
CDs through CD OneSource have averaged almost $800 million per week,
compared to an average of less than $200 million per week during the same
period last year. (For more information about CDs, go to
http://www.schwab.com/cd_benefits)
In addition to increased CD activity, the company recorded net inflows
into money market funds of $5.2 billion during the quarter ending June 30,
an 80 percent increase from first quarter levels. Aggregate balances in
money market funds at the end of June had climbed to $125.3 billion,
compared to $109.7 billion a year ago. (For more information about money
market funds, go to http://www.schwab.com/money_market_funds)
Additionally, assets in the industry-leading suite of Schwab Funds(R)
YieldPlus ultra-short bond funds at June 30 had climbed 34 percent year
over year, showing their increasing popularity. Ultra-short bond funds are
often used as a cash alternative for investors who have a holding period of
at least a year and seek higher yields than are typically available with
money market funds. Unlike money market funds, ultra-short bond funds are
subject to minimal price fluctuations. Schwab Funds offers one taxable and
two tax-free YieldPlus ultra-short funds: Schwab YieldPlus Fund (SWYPX,
SWYSX), Schwab Tax-Free YieldPlus Fund (SWYIX, SWYTX) and Schwab California
Tax-Free YieldPlus Fund (SWYKX, SWYCX). The Schwab YieldPlus Fund has a
five-star overall rating from Morningstar out of 97 funds in the ultra-
short bond category for the period ended June 30, 2006. (The fund received
a five-star rating for the three- and five-year periods out of 97 funds for
the three-year period and 67 funds for the five-year period, respectively.
Past performance is no guarantee of future results. The overall Morningstar
rating is derived from a weighted average of the risk adjusted performance
figures associated with a fund's three-, five-, and 10-year [if applicable]
Morningstar Rating(TM) metrics.)(2)
"The breadth and quality of cash investments we offer, their enhanced
visibility on schwab.com, and the help and advice we're providing clients
who are looking to augment their cash holdings or boost yield are all
contributing to the high volumes we're seeing," said Rene Kim, senior vice
president of Schwab Investor Services. "Our cash products include some of
the most competitive investments available anywhere for short-term,
intermediate-term and long-term cash needs, including the very best rates
on three-month CDs."(3)
Schwab Recommendation for Portfolio Cash Holdings
In May, Schwab's Investment Strategy Committee updated its model
portfolio guidelines, calling for an overweighting of cash and
underweighting of stocks. Specifically, the guidelines suggest that
investors consider paring back on their U.S. and international stock
holdings by as much as 5 percentage points each, while increasing their
cash holdings by as much as 10 percentage points. Using the example of a
moderate investor with a long-term target of 60 percent stocks, 35 percent
bonds and 5 percent cash, this would mean trimming stock holdings to 50
percent of the portfolio and boosting cash to 15 percent.
"While we believe investors should stick to their long-term asset
allocation strategy, they might consider some strategic pruning," said Liz
Ann Sonders, Schwab's chief investment strategist. "As markets have
suffered some confidence-bruising sell-offs, risk-taking has lost some of
its allure and the appeal of cash as a safe haven has been charming
investors, especially relative to more volatile alternatives."
Investors should consider carefully information contained in the mutual
fund prospectus, including investment objectives, risks, charges and
expenses. You can request a mutual fund prospectus by calling Schwab at
800-435-4000. Please read the prospectus carefully before investing.
An investment in a money market fund is neither insured nor guaranteed
by the FDIC or any other government agency. Although the fund seeks to
preserve the value of your investment at $1 per share, it is possible to
lose money by investing in the fund. Please note that bank deposits are
FDIC insured up to $100,000 while non-bank investment products have no such
guarantees.
Unlike mutual funds, certificates of deposit offer a fixed rate of
return and are FDIC insured. Brokerage Products: Not FDIC Insured * No Bank
Guarantee * May Lose Value
About Charles Schwab
The Charles Schwab Corporation (NASDAQ: SCHW) is a leading provider of
financial services, with more than 330 offices and 6.8 million client
brokerage accounts, 521,000 corporate retirement plan participants, 178,000
banking accounts, and $1.3 trillion in client assets. Through its operating
subsidiaries, the company provides a full range of securities brokerage,
banking, money management and financial advisory services to individual
investors and independent investment advisors. Its broker-dealer
subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org),
offers a complete range of investment services and products including an
extensive selection of mutual funds; financial planning and investment
advice; retirement plan and equity compensation plan services; referrals to
independent fee-based investment advisors; and custodial, operational and
trading support for independent, fee-based investment advisors through its
Schwab Institutional division. The Charles Schwab Bank, N.A. (member FDIC)
provides banking and mortgage services and products. The company's other
operating subsidiaries include U.S. Trust Corporation (member FDIC) and
CyberTrader(R), Inc. (member SIPC, http://www.sipc.org). More information
is available at http://www.schwab.com. (0806-6725)
1. Data excludes US Trust.
2. Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 06/30/2006. For each fund with at least a three-year
history, Morningstar calculates a Morningstar Rating(TM) based on a
Morningstar Risk-Adjusted Return measure that accounts for variation in a
fund's monthly performance (including the effects of sales charges, loads
and redemption fees), placing more emphasis on downward variations and
rewarding consistent performance. (Each share class is counted as a
fraction of one fund within this scale and rated separately, which may
cause slight variations in the distribution percentages.) The top 10
percent of the funds in an investment category receive five stars, 22.5
percent receive four stars, 35 percent receive three stars, the next 22.5
percent receive two stars, and the bottom 10 percent receive 1 star.
3. Compared to rates shown on Bankrate.com as of July 28, 2006
SOURCE Charles Schwab
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Related links:
http://www.schwab.com
CONTACT:
Sarah Bulgatz of Charles Schwab,
+1-415-636-5940 or sarah.bulgatz@schwab.com
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