Zurich YieldWise, which is restoring expenses after having waived them for the past year and a half, may be a harbinger of things to come.
"When they (Zurich YieldWise) came into being in April 1997, they were waiving all fees," said Connie Bugbee, editor of IBC Data's Money Fund Expense Report of Ashland, Mass. Now, Zurich YieldWise is slowly reinstituting fees, she says. The fund's expense ratio was 21 basis points in July, 31 basis points in August and 34 basis points in September, she said.
Zurich YieldWise's assets were $1.2 billion in March, 1998. That was the first month it added expenses of five basis points, Bugbee says. By Sept. 30, its performance having fallen because of the re-establishment of expense charges, assets had dropped by $100 million to $1.09 billion. Zurich YieldWise, part of the Scudder Kemper Investments fund Group of Chicago, had been the number one yielding fund until Feb. 10, when it was surpassed by Strong Investors Fund, Bugbee said. Now Strong Investors is the only money fund believed to be waiving all expenses, said Bugbee. Zurich YieldWise has dropped to the 19th highest- yielding money fund, according to IBC Data.
"We're not adding expenses," to Zurich YieldWise, said Pamela Plehn, assistant vice president with Scudder Kemper Investments. "We're just ceasing to waive some of the expenses." The temporary status of the expense waiver was disclosed in the fund's prospectus, she said. She declined to explain why the charges were re-established.
The Benham Tax-free Money Fund, now part of the American Century Group of Funds in Kansas City, also stopped waiving all expenses in August, says Bryan Karcher, the fund's portfolio manager. At that time, it began instituted a 10 basis points per month expense charge. As of Nov. 5, its expense ratio was 40 basis points. It was to rise to 50 basis points -- its cap -- in December.
Karcher said that Benham Tax-free Money Fund's decision to waive all expenses was a marketing tool to attract new shareholders to the fund which was started in 1984. The expense ratio has the greatest impact on differentiating yields, he says.
"By waiving expenses with a money fund, it practically guarantees that you have the number one performing money fund unless there are other money funds waiving expenses," Karcher says.
The high yield provides something to market to attract new investors and develop new relationships, he said. The fee-waiver was promoted in print ads and in a television spot. The Benham Tax-free Money Fund has $457 million in assets, he says. He estimates he lost about 10% of assets with the fee increase since August, as he expected. The fund group began cross-selling its other funds to new investors long before the expenses were restored.
"We didn't want to wait until the money started flowing out," Karcher said.
Meanwhile, the Strong Investors Money Fund, introduced in Jan. 31, 1998, announced in its prospectus it would waive all expenses through Jan. 1, 1999, says Shannon Taggart, a spokesperson for the Strong Funds of Milwaukee, Wis. It has not yet been determined whether the waiver would continue beyond that, she said.