Charles Schwab Yield Plus Funds
Many investors have sustained substantial losses in The Schwab Yield Plus Select Fund (SWYSX) and the Schwab Yield Plus Fund (SWYPX), commonly referred to as the "Schwab Yield Funds." These investors have reported that they were assured that the Schwab Yield Funds were "safe alternatives" to money market funds and cash holdings. The Schwab Yield Funds turned out to be anything but safe, as many investors have lost a major portion of the principal invested in these Funds. While the average ultra short term bond fund has lost approximately 1.9% in the last 6 months, the Schwab Yield Funds have dropped about 24%.
Originally, Charles Schwab filled these funds with a portfolio of highly rated bonds that matured in one-year or so. This was supposedly so that the portfolio could easily unload underperforming assets. But as time went on, investors say the strategy wasn't working and Charles Schwab began to purchase securities tied to higher risk subprime mortgage related assets.
Employees of Charles Schwab misrepresented the risks associated with the Schwab Yield Funds. Moreover, Schwab failed to inform investors that the Funds' managers had concentrated the Funds' assets in collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs"), and collateralized mortgage obligations ("CMOs"), collectively referred to as "collateralized debt obligations" ("CDOs") or "structured financial products." These securities were and are thinly traded and illiquid, and often difficult to value. Essentially, investors of the Schwab Yield Funds received a mutual fund concentrated in speculative, risky mortgage backed securities. The manner in which the Schwab Yield Funds were invested made them more like hedge funds rather than money market funds.
The Schwab Yield Plus prospectus made the following misleading or fraudulent misrepresentations: "The Schwab Yield Plus fund is an ultra short-term bond fund, designed to offer high current income with minimal changes in share price"; "Strategy: To pursue its goal, the fund primarily invests in investment-grade bonds (high and certain medium quality, AAA to BBB -- or the unrated equivalent as determined by the investment adviser)...To help maintain share price stability and preserve investor capital, the fund seeks to maintain an average portfolio duration of one year or less"; and "The fund's investment strategy is designed to offer higher yields than a money market fund while seeking minimal changes in share price."
Investors should consider all of their legal options when attempting to recover losses in the Schwab Yield Funds. Investors should consider the benefits of filing an individual arbitration claim. It may be more beneficial for an investor to file an individual securities arbitration claim because investors who file a securities arbitration claim generally obtain an overall higher rate of recovery.
Many investors were duped into buying into the Charles Schwab Yield Plus fund after the fund was marketed to them as a safe, conservative fixed-income instrument akin to money market accounts. It is likely that Charles Schwab's fund losses will continue. The law offices of Howard M. Rosenfield is investigating investor claims and offers free consultations.