By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Wednesday, May 13, 2020.

George C. Miller

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 105)
Direct: (619) 501-8270
Email: [email protected]

UBS Financial Services is reportedly facing an onslaught of filed and threatened investor claims after its Yield Enhancement Strategy (“YES”) options portfolio plummeted.  The YES strategy was marketed and sold primarily to wealthy investors as a bond portfolio “enhancement.”  The strategy purportedly incorporated a “defined maximum loss,” limited to the premiums investors paid.  UBS claimed that the YES strategy combined S&P 500 put and call options in a “non-directional” manner which, according to UBS, would result in a low correlation to market movement.  But as Warren Buffett said, only when the tide goes out do you discover who’s been swimming naked. 

The S&P 500 was not, of course, immune to the unprecedented volatility the markets saw in late February/early March 2020, as the coronavirus took hold and ground the economy to a halt.  During that period, YES portfolios reportedly lost a whopping 33%, possibly because the portfolio’s out-of-money bear calls and bull puts far exceeded the premiums investors paid, contrary UBS’s stated strategy for the product.  These losses follow another, approximately 11% loss in YES portfolios during December 2018.  The fact that YES investments experienced substantial declines during an earlier period of market volatility suggests UBS and its advisors were, or reasonably should have been, on notice that the product did not, in fact, have a “low correlation” to market volatility.  

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Partner George C. Miller can be reached in the firm’s San Diego office at (619) 696-9500. 

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