Please Note: You are viewing the unstyled version of Subprimelosses. Either your browser does not support CSS (Cascading Style Sheets) or it is disabled. As a result, much of this website will not look the way it was intended, although all of its contents will be accessible to you. For more information, visit our Browser Support page.

Skip to Primary Site Navigation, Secondary Site Navigation, Content

Home > Cases > AMF Funds > Ultra Short Bond Funds: The End Of An Era?

Ultra Short Bond Funds: The End Of An Era?

Once rising stars, high-profile ultra short bonds are crashing and burning. Among the latest casualties: the AMF Ultra Short Mortgage and the AMF Ultra Short funds. Both funds join Schwab YieldPlus Fund and Evergreen Investments in the ultra short bond funds which have suffered massive losses due to toxic subprime mortgage-backed securities. Redemptions by investors have compounded the problem for many ultra short bond funds, causing bond fund managers to sell securities at steep discounts.

As a result, the investing allure of ultra short bonds is fading, and investors are fleeing in droves.

The financial failures of ultra short bonds like Evergreen's Ultra-Short Opportunities Fund, the Schwab YieldPlus Fund and the AMF Ultra Short Funds also are prompting investor lawsuits against the firms that marketed the funds as cash-like alternatives - investment vehicles designed to provide higher yields and minimal risks.

In June, Evergreen Investments announced plans to shut down its Ultra-Short Opportunities Fund to the tune of $403 million - less than half of what the fund was worth six months earlier. The Ultra-Short Opportunities Fund - which had nearly three quarters of its assets in mortgage-backed securities - lost more than 20 percent this year, making it the second worst performing of the ultra-short bond funds tracked by Morningstar Inc.

Taking the lead as the worst-performing fund is the Schwab YieldPlus Fund. Forced to meet investor redemptions and sell its securities at huge losses, the fund reported an astonishing 30% decline in value in 2008, with its assets falling from $6.5 billion at the beginning of the year to just over $500 million at the end of July.

Another bond fund to suffer extensive losses is Fidelity Investments' Ultra-Short Bond Fund, which has fallen in value more than 13 percent this year.

As with other mutual funds, ultra-short bond funds invest in a wide range of securities - including corporate debt, government bonds, subprime mortgages, and other asset-backed securities.

It's the latter part of an ultra short bond fund's portfolio that has investors up in arms. Many investors who experienced significant - and unexpected - financial losses in ultra short bond funds say they were unaware of the funds' investments in risky mortgage-backed securities.

Moving forward, selling investors on these types of investments will likely be a difficult proposition indeed. Like the adage says, once burned, twice shy.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.


Return to AMF Funds >


Top