While stocks have recovered from their historic March lows, a complex investment product known as the UBS Yield Enhancement Strategy or YES, has not enjoyed a similar bounce back.
Just a couple of months ago, the Dow Jones Industrial Average and the S & P 500 suffered their worst first quarter in history, losing 23% and 20%, respectively, for the first three months of the year as a result of the COVID-19 pandemic and resulting economic shutdown.
The S & P 500 saw its most volatile month ever, with frenetic swings whipsawing the market from steep gains to even steeper losses. Both indices plunged over 30% from their February 19 record close to their March 23 lows.
Investors Are Still Suffering Losses Despite Market Uptick
Ever since, the market has seen an amazing turnaround. The Dow and the S & P 500 had a breakneck bounce back seeing gains which left them, amazingly, near their all-time highs. It’s been a tumultuous ride in the market for Mom and Pop investors.
Unfortunately, YES, an “options overlay strategy” that UBS sold to its retail customers, continues to suffer losses and has pummeled investor portfolios.
“YES, whose holdings peaked around $6 billion in mid-2018, eﬀectively borrows against clients’ holdings at UBS and uses the proceeds to trade options,” according to a recent Wall Street Journal article. “The product is akin to a margin loan against existing holdings; losses could compel an investor to put in extra cash or securities.”
“Although clients say UBS ﬁnancial advisers told them the strategy was conservative, in reality it often embedded risky bets that the market would stay placid—gambles on which many investors lost 20% or more.”
The strategy “seeks to limit exposure to signiﬁcant upside or downside market moves,” according to the YES marketing material, and could “generate additional cash ﬂow from lower yielding assets.”
YES “has limited correlation with the market or a single stock position,” so it could oﬀer diversiﬁcation, said the document. Using options strategies for protection, “we prepare for unexpectedly volatile market conditions.”
However, in the first quarter of 2020 alone, YES lost -16%, causing investors to exit the strategy in droves. Assets under management have fallen from $6 billion to less than $1.5 billion.
Contact Investment Fraud Attorney Jake Zamansky to Discuss Your Legal Options
According to the Journal, at least 60 YES investors have filed investment fraud cases to recover their losses.
Despite the recovery in the broad stock market, the YES strategy is seeing no bounce back and continues to harm investors. Speak to investment fraud attorney Jake Zamansky if you’ve sustained losses related to YES.
To find out more about YES, check out our most recent prior coverage on the subject: