Bonds

On October 9, 2014, Puerto Rico’s Office of the Commissioner of Financial Institutions (OCFI) has settled its claims with UBS Financial Services Incorporated of Puerto Rico (UBS Puerto Rico) over UBS’s sale of closed-end mutual funds in Puerto Rico. The OCFI conducted a routine examination from October 15, 2013 through June 27, 2014. The examination of UBS Puerto Rico was conducted to determine if the firm complied with the Puerto Rico Uniform Securities ACT Regulation No. 6078.

The OCFI interviewed a sample of clients and examined whether certain former and current UBS Puerto Rico brokers either (i) recommended that, or (ii) permitted certain clients to, use non-purpose loans through UBS Bank USA to purchase securities in UBS brokerage accounts during the 2011-2013 period in violation of the customers’ loan agreements and UBS Puerto Rico policies.

The OCFI determined that for some clients, such a practice was unsuitable based on the customers’ financial objectives, risk tolerance and needs, and that UBS Puerto Rico brokers may have induced clients through the misrepresentations or omissions of material facts.

Bad may be a little strong. There are not magic signs to determine if you have a bad bond fund. However, as Morningstar explains, there are red flags that investors can look at to determine if they are in a fund that is likely to fail. If a fund has multiple red flags, chances are it is best to leave that fund alone.

High Yield

Uncharacteristically high yields generally spells trouble for a fund. Yield is generally defined as a snapshot of how much income a fund is paying as an annual percentage of its net assets under management. Just remember there is no such thing as a perfect investment or a free lunch. There isn’t any extra source of return that does not have some corresponding risk. Sometimes that risk takes the form of credit risk, sometimes liquidity risk and sometimes it is simply risk of wild fluctuations in price. Whatever the the risk, it exists. Try not to invest in only the highest yielding funds. Try to determine how your fund of choice performed during the 2008 and 2009 market crisis and see if the amount of loss is something you can stomach in the future.

Articles Tagged with Bonds

UBS Puerto Rico Fined $3.6 Million and to Pay $1.7 Million in Restitution to Customers of its Bond Funds

Are You Investing in Bad Bond Funds?