Recent actions by Charles Schwab in offering money to investors in its Yield Plus Bond Fund are tantamount to an admission that the fund was misrepresented to investors. Schwab had marketed the Yield plus Fund as a safe, conservative short-term bond fund that was a cash equivalent and offered low volatility. It was pitched as an alternative to a money-market fund. Yet the Yield Plus Fund has lost approximately 20% of its value over the past year.
With a marketing description such as that, it is obvious that Schwab routinely recommended the Yield Plus Fund to investors whose objectives were safety and preservation of capital. The Yield Plus Fund, however, was heavily invested in mortgage-backed securities and was clearly not a safe investment. The fund’s asset base peaked last year at $13.5 billion and had dropped to $1.5 billion earlier this month. The fund has had such poor results that even the Schwab Charitable Fund has withdrawn donor investments from the Yield Plus Fund.