Schwab bond fund bleeds cash

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The Schwab Yield Plus bond mutual fund is a classic example of what can happen when investors flee a struggling fund in droves. Things can quickly go from bad to worse for those who stay put if the fund manager is forced to sell depressed securities to meet redemptions.

The portfolio, marketed as an ‘ultra-short-term’ bond fund -- in theory, just a step up in risk from a money-market fund -- had some of its assets invested in sub-prime-mortgage-related securities last year. That led to losses in the third and fourth quarter, and triggered a rush of redemptions.

Fund-tracker Morningstar details the latest on the situation here. The Schwab fund’s share price has sunk from $8.79 at the end of February to $7.34 today, a 16.5% plunge. It’s a good bet that no investor in this fund ever contemplated losing that amount of principal.