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Morningstar tells remaining investors to dump Schwab YieldPlus

Posted by: Aaron Pressman on August 26, 2008

Charles Schwab’s money management unit was hardly the only shop burned by putting dangerous subprime-backed investments in supposedly conservative short-term bond mutual funds. Fidelity, Evergreen and others also had losses when the subprime market blew up starting last summer. But the experience of investors in the once almost $14 billion Schwab YieldPlus Fund (SWYPX), who have now lost over 30% of their money, is by far the worst, Morningstar notes in a recent write-up. Once shareholders started heading for the exits, Schwab managers had to sell illiquid assets at the worst possible time, magnifying the damage and making it impossible for the fund to recover if the market ever bounced back.

Still, the fund had over $500 million in assets at the end of last month. Morningstar analyst Miriam Sjoblom has a simple message for those remaining folks:

Shareholders have been effectively liquidating the fund already: It has experienced the greatest amount of net outflows of any mutual fund this year, with net assets dropping to $524 million at the end of July from $6.5 billion at the start of 2008. Remaining shareholders would be better off following suit.

Former shareholders should also watch the headlines for developments about the class action lawsuits filed against Schwab over the fund’s losses. U.S. District Judge William Alsup in San Francisco consolidated nine suits and appointed lead plaintiffs attorneys last month.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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