Charles Schwab Corp. has formed a partnership with Pacific Investment Management Co. to offer wealthy clients in or approaching retirement a managed municipal bond laddering product.
Responding to client demand for investment products with greater stability and consistent income, Schwab introduced four separately managed muni-ladder accounts.
A common fixed-income technique, laddering entails buying bonds across a spectrum of maturities. As the bonds in the bottom rung mature, the principal is reinvested in long-term bonds.
This ensures that the portfolio is always evenly distributed across a range of maturities, offering some protection against swings in interest rates or shifts in the yield curve.
Schwab is offering two maturity ranges — one to 12 years and one to 18 years.
For each maturity range, Schwab offers a national product and a California product.
Andy Gill, a senior vice president of fixed income at the San Francisco brokerage company, said these ladders are distinguished by Pimco's expertise from the ladder a financial adviser would build.
"Pimco offered us the best solution for our clients in terms of overall value, credit quality and monitoring," he said.
Pimco will scour the market for superior credits to include in the rungs upon initial investment as well as for reinvesting maturing principal. It will select bonds rated A-minus or better. The Newport Beach, Calif.-based investment manager is to monitor the invested capital to ferret out any bonds it deems unfit for investment-grade portfolios.
Pimco also enjoys "institutional purchasing power" in buying bonds for Schwab's clients.
Schwab, which oversees $1.42 trillion in client assets, did a study recently that found investors 55 to 70 years old are "more concerned with income generation and principal preservation than portfolio growth when compared to younger investors."
That, Gill said, is the rationale behind offering more laddering capabilities to investors.
