In 2010, the Fund initiated a position in Charles Schwab (SCHW
) (a leading U.S. brokerage company) due to its durable business franchise, strong market position, growth prospects, and attractive valuation. As a result of the low interest rate environment in the United States, Schwab had waived some of the fees it charged customers on money market funds and its net interest margins substantially compressed. We believed that the company's revenues and earnings would be significantly higher in a more normal interest rate environment. However, starting in late 2010, the Fed announced additional rounds of quantitative easing and interest rates continued to drop.
Throughout 2011 and 2012, we reaffirmed our investment thesis with the belief that a return to a more normal rate environment could dramatically increase profitability. Through our meetings with management, we were able to assess the company's investment merits and risks, all in the context of valuation. Schwab's highly scalable business model, excellent market position, growing customer base, focused corporate culture, and capable management team were attractive to us. In addition, founder and Chairman Charles Schwab's ownership stake aligned his interests with those of public investors. These factors remain the underpinnings of our current investment thesis. Continue Reading »