Schwab Yield Plus problems may not be limited to this one bond fund
Although it was promoted and sold as a safe alternative to cash or money market accounts, the Schwab YieldPlus bond fund has lost 25% of its value since the beginning of this year. Heavy investments in risky mortgage-backed securities have lead to substantial losses for investors. While other bond funds in the same class have only lost about 2% on average this year, the Schwab Yield Plus problems may not be unique to this one fund.
Charles Schwab YieldPlus is an ultra-short bond fund, which invests in fixed income securities with extremely short maturities. YieldPlus was once the most popular bond fund offered by Charles Schwab, and through most of 2007 it was one of the best sellers in the entire bond fund industry. This is why the recent losses suffered by investors have gained a lot of media attention.
Bond mutual funds traditionally invest mostly in bonds issued by governments and large, established companies. Mortgage-backed securities held usually consist of those issued by Fannie Mae, Freddie Mac and other federal agencies. While bond funds certainly carry more risks than cash or money market accounts, most investors who choose bond funds have conservative investment objectives.
In an attempt to increase returns, the fund managers at Schwab Yield Plus decided to add investments in more complex mortgage securities issued by private financial institutions, many of which were based on subprime loans. The full extent of the investment in these risky securities was not properly disclosed to investors, and many have been shocked by the substantial losses suffered by a bond fund they were told was a relatively safe investment.
>>PRIOR POST (4/10/2008): Schwab Yield Plus Select losses may be recoverable
Unfortunately, the Schwab Yield Plus problems may also extend to other ultra-short bond funds which have experienced losses in recent months tied to large investments in subprime mortgage securities. The following funds have also suffered losses which greatly exceed the ultra-short bond fund industry average:
- Fidelity Ultra Short Bond Fund
- SSgA Yield Plus (from State Street Global Advisors)
Other intermediate-term and short-term bond funds from Morgan Keegan, including the Regions Morgan Keegan Select funds, have also suffered dramatic losses as a result of the fall of the subprime mortgage market.
>>INFORMATION: Morgan Keegan Fund Problems
BOND FUND LAWSUITS
The lawyers at Saiontz & Kirk, P.A. represent investors who are pursuing Schwab YieldPlus lawsuits and Morgan Keegan lawsuits to recover losses suffered as a result of the fund managers’ failure to disclose the full extent of the risk associated with investments in subprime mortgages, and failure to properly diversify the funds’ portfolios. If you, a friend or family member have suffered losses in excess of $10,000 as a result of an investment in a bond fund, request a free consultation and claim evaluation.
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