‘Conservative and Low-Risk’ Funds Cloak Large Capital Danger for Many

A decade of ultra-low yields and financial gimmicks have turned a generation of savers unwittingly into gamblers and fueled a marketing bonanza of ‘high yield’ funds, products and strategies sold to gullible masses hoping for more than the safest assets were offering.  As in the last two cycles, this speculative frenzy was always destined to end with widespread losses, upset and lawsuits.

Sudden price drops in the third quarter of 2018 were a warning shot for anyone willing to see the truth.  For those who fell back to complacent sleep in the rebound that followed, the nightmare is yet unfolding.

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Some lawsuits are already underway from UBS clients in a ‘yield enhancement strategy’ who saw losses greater than 20% in 2018 in an investment they were told was ‘conservative’ and ‘low risk.’   See:  UBS clients burned by iron condor strategy:

The goal of the Yield Enhancement Strategy is to give investors better returns or cash flow, typically on assets that don’t themselves yield much, according to marketing materials for YES… [DP: this is a widespread marketing mantra today]

To do that, the YES team uses an investor’s assets as collateral in a margin account to execute an esoteric options strategy called an “iron condor.”…As long as the price stays within the breakeven points created by the spreads, you make money.

When the price moves out of the ‘breakeven’ points, you lose a ton. What could possibly go wrong, right?

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