Give Citizens Trust E-Fund an ‘A’ for Innovation
Not many exciting things happen in the boring world of money market mutual funds. You could buy a fund, slip into a deep sleep, awake in five years and find things pretty much unchanged, except for modest fluctuations in yield in the meantime.
So it’s noteworthy when some true innovations come along, and the new E-Fund from Citizens Trust in Portsmouth, N.H., can point to several.
This fund, which currently pays the highest yield of any money market portfolio of its type, offers several wrinkles that blur the lines between money funds and bank accounts. Besides unlimited check writing, E-Fund shareholders can make purchases with the use of a debit card.
“As far as we know, they’re the only fund company with a debit card,” says Tracy Burk of IBC/Donoghue Inc., an Ashland, Mass., research firm.
The debit card not only represents an easy way for shareholders to buy goods and services and withdraw cash, it also cuts down on paper use.
“It’s amazing how much paper transactions cost,” says Sophia Collier, the E-Fund’s president and 60% owner of Citizens Trust and its group of seven socially responsible funds. By encouraging use of debit cards, the company ([800] 533-3863) hopes to keep a lid on shareholder-borne expenses.
Another unusual aspect is that Citizens Trust has agreed to refund a small fraction of the debit card transactions made by shareholders back into the fund to boost its yield.
The debit cards have been available only since October and have yet to be used widely by E-Fund’s small base of shareholders, but Collier estimates that the refund feature eventually could push up the yield by 60 basis points, or six-tenths of a percentage point.
“This is a source of income that no other money fund has,” she says.
As a temporary bonus, the company is absorbing all fees on the E-Fund and plans to do so through February. About 61% of money funds waive some of their expenses to pump up yields, reports IBC/Donoghue, but only a few absorb all costs.
The fee waiver has helped lift the E-Fund to a top ranking in IBC/Donoghue’s “first tier” group of money funds, consisting of those that invest in high-grade IOUs.
The fund’s recent simple yield of 6.39% compares with 5.99% for Strong Heritage of Milwaukee, the No. 2 fund of this class, and 5.17% for the average first-tier money market portfolio.
Eventually, the fee waiver will end, but even then the fund’s expenses won’t top 0.5%, Collier says. “The fee-waiver helps, but the E-Fund would be way up there anyway,” says Burk.
Unfortunately, the E-Fund’s list of unusual features also includes a few that might discourage some investors.
One is a $35 annual charge that covers the debit card. Although the fund accepts shareholders with as little as $1,000, the $35 charge makes it uneconomical at that level compared to competing money market portfolios.
But for a person maintaining a balance closer to, say, $10,000, the fund’s costs are more palatable. The $35 annual charge, plus operating expenses of 0.5% a year (when fully phased in), works out to about 0.85% in total costs--a more reasonable levy given the fund’s high-yield potential.
The $10,000 figure is significant because that’s the maximum amount investors can keep in the fund. The only exception here is for those lucky people who earn more than $10,000 a month--they can maintain a maximum balance equal to their monthly salary.
It’s highly unusual for any mutual funds to place a ceiling on the amount you can invest, but Collier says she wants to discourage people who simply want to park a lot of cash at the best rate they can get.
“The fund is designed as an alternative to checking accounts,” she says. Without the ceiling, “we would attract a lot of yield-seekers.”
Another drawback is that Citizens Trust requires shareholders to funnel cash into the E-Fund on a regular basis through payroll deposit or some other type of automatic-deposit program. Other money market portfolios offer this feature, but as an option.
And it’s worth noting that the E-Fund, as a money fund, is not covered by federal deposit insurance.
If you can live with its quirks, the E-Fund is worth checking into as a checking account substitute. This innovative portfolio is among the more interesting products to emerge from the money fund arena in years.
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Profile: Sophia Collier
Sophia Collier, majority owner of the Citizens Trust family, didn’t enter the mutual-fund business through the usual business-school route. Instead, her pathway involved soft drinks.
In 1977 at age 21, Collier and a friend launched Soho Soda from her kitchen. The business took off to where it was generating $25 million a year in sales before they sold out to Seagram’s Corp. in 1989 for an undisclosed amount.
A multimillionaire, Collier then bought a farm in Durham, N.H., to sort out her next moves, one of which involved the purchase of the Working Assets Money Fund with help from three members of the Dunfey family, founders of the Omni Hotel chain.
Since that 1991 deal, Collier and the Dunfeys have expanded to seven funds, now listed under the Citizens Trust group of Portsmouth, N.H. The funds invest money in a “socially responsible” way, favoring firms with desirable policies on the environment, workplace practices and other issues while avoiding those engaged in animal testing or the production of weapons, alcohol or tobacco.
Something of a Renaissance woman, Collier’s interests have ranged from gardening to sailing to Mexico on a boat she built herself. She was the only person from the fund business invited to the Little Rock Economic Summit that Bill Clinton hosted soon after the 1992 election.
