Charles Schwab Investment Management filed recently with the SEC to launch a new floating NAV money market fund, Schwab Variable Share Price Money Fund, which should go live in January 2016. Schwab recently outlined their money market fund plans in a letter to clients and shareholders (see our Oct. 13 News, "Schwab Going All Retail, Converting Inst Shares; MMP Switches to Govt"). In that announcement, Schwab said it was converting its few Institutional share classes to Retail, making its current roster entirely "Retail". The company said nothing about this new seemingly Institutional offering, though, and couldn't comment on the pending filing. In other news, Invesco sent out an update to clients late last week announcing plans for its MMF lineup. (See their press release, "Invesco Announces Intended Changes to Money Market Funds.") The company details which funds will be Government, Retail, and Institutional and designated its $17 billion Liquid Assets and STIC Prime funds as Institutional. It also announced that it will convert one fund -- the $662 million Invesco VI Money Market Fund -- to a Government MMF.
Schwab's Variable NAV MF filing says under "Investment Objective," "The fund's goal is to seek current income consistent with stability of capital and liquidity." Its "Principal Investment Strategy" explains, "The fund is a money market fund that is designed to serve as a complementary product to traditional stable share price money market funds. Unlike a traditional stable share price money market fund, the fund will not use the amortized cost method of valuation or round the per share net asset value (NAV) to the nearest whole cent and does not seek to maintain a stable share price. As a result, the fund's share price, which is its NAV, will vary and reflect the effects of unrealized appreciation and depreciation and realized losses and gains."
The filing continues, "To pursue its goal, the fund invests in high-quality short-term money market investments issued by U.S. and foreign issuers such as: commercial paper, including asset-backed commercial paper; promissory notes; certificates of deposit and time deposits; variable- and floating-rate debt securities; bank notes and bankers acceptances; repurchase agreements; and obligations that are issued by the U.S. government, its agencies or instrumentalities, including obligations that are not guaranteed by the U.S. Treasury, such as those issued by Fannie Mae and Freddie Mac (U.S. government securities)."
It adds that the fund has "Variable NAV Risk," explaining, "The fund does not maintain a stable NAV per share [though it will be priced at $1.00]. The value of the fund's shares will be calculated to four decimal places and will fluctuate with changes in the values of the fund's portfolio securities. You could lose money by investing in the fund." Further, it says, "On or after October 14, 2016 ... the fund is permitted to impose a liquidity fee or redemption gate during times of extraordinary market stress."
The Schwab Variable Share Price Money Fund will have 4 share classes -- Ultra (SVUXX), Premier (SVRXX), Select (SVCXX), and Investor (SVOXX). The Ultra class will have expenses of 0.21% (after expense reduction) and a minimum initial investment of $10 million. The Premier share class has a fee of 0.24% (after reduction) and a minimum initial investment of $3 million. The Select shares has a fee of 0.35% (after reduction) and a minimum initial investment of $1 million, while the Investor shares has a fee of 0.45% (after reduction) and a minimum initial investment of $25,000 or $15,000 for an IRA of custodial accounts.
The filing explains, "The fund's Ultra Share Class has been established as a cash management vehicle for affiliated mutual funds. The Ultra Share Class is not available to other investors. The fund reserves the right to change the availability of the Ultra Share Class at any time without prior notice to shareholders. Because affiliated funds may invest in the fund, the fund may have large inflows and/or outflows of cash from time to time, which could cause the fund to sell or purchase securities at times when it otherwise would not do so. This could cause the fund to incur transaction costs and may result in high taxes, which could affect performance."
Invesco's client update explains, "Invesco has been thoughtfully evaluating the impact this reform will have on our investors and our product line. Throughout this process, we have been listening to your questions and working through the concerns that you have articulated to ensure our products continue to meet your needs. In order to assist our investors in planning, and to help ease the transition into the new regulatory environment, here we outline our intentions for certain segments of our money market fund product line."
It says, "The following Invesco money market funds will operate consistent with the government money market fund classification: Government and Agency Portfolio, Government TaxAdvantage Portfolio, Invesco VI Money Market Fund, Premier US Government Money Portfolio, and Treasury Portfolio.... Invesco VI Money Market Fund, currently a prime money market fund, will change its name and investment strategy to qualify and operate as a government money market fund effective on or about April 29, 2016." The other government funds are already in full compliance with the new regulations that call for 99.5% of the portfolio to be invested in government securities. Also, none of these government funds will adopt fees or gates.
Invesco also outlines its CNAV Retail funds, "The following Invesco money market funds will operate consistent with the CNAV retail money market fund classification: Invesco Tax-Exempt Cash Fund and Tax-Free Cash Reserve Portfolio. Invesco will provide additional details to the CNAV Retail money market fund shareholders regarding this change prior to the effective date."
Finally, they categorize the Floating NAV funds. "The following Invesco money market funds will operate consistent with the FNAV money market fund classification: Liquid Assets Portfolio, Premier Tax-Exempt Portfolio, and STIC Prime Portfolio. Invesco will provide additional details to the FNAV Retail money market fund shareholders regarding this change prior to the effective date."
The update adds, "Invesco money market funds will be in compliance with the new regulations prior to the October 14, 2016 deadline.... The specific timing of changes will be determined and communicated in 2016 as final reform implementation takes shape.... Additionally, we will communicate plans for Invesco's other money market funds, the Invesco Money Market Fund and Premier Portfolio, not specifically mentioned in this letter, in the coming weeks."
Invesco concludes, "Our primary goal through our money market fund reform process is to provide our investors with a full suite of liquidity management solutions to meet their investing needs with the least amount of disruption while remaining focused on our disciplined investment process. For Invesco Global Liquidity, safety is of paramount importance in the investment process for all of our money market funds. Our conservative investment philosophy has always focused on providing safety, liquidity, and yield -- in that order -- to our money market fund investors. We're dedicated to the future of this industry -- and to yours."
