Chicago-based investor rights attorneys at Stoltmann Law Offices, P.C. have been retained by an investor who lost substantial sums from her portfolio in 2018 and 2019 during an unprecedented bull market. The investor’s complaint alleges that because her Chicago-based Morgan Stanley broker invested most of her retirement accounts in “bear” mutual funds, that she lost approximately $150,000 when her accounts should have actually increased by at least $100,000. The Morgan Stanley financial advisor apparently believed he had the ability to time the market and aggressively placed unsuitable bets on the market’s direction. It is alleged that Mr. George bet virtually all of this investor’s retirement money on the belief that the stock market would abruptly collapse in 2018 or 2019. Unfortunately for this investor, who is retired and has little investment experience to speak of, she missed out on the gains she would have received had Morgan Stanley invested her funds in a well managed portfolio catered to her investment objectives and risk tolerance.
The specific funds that Morgan Stanley financial advisor Richard George is alleged to have recommended to this investor are:
- Leuthold Grizzly Short Fund (symbol GRZZX)
- PIMCO Stock Plus SH (symbol PSPLX)
- Active Bear ETF (symbol HDGE)
“Short” or “bear” funds are mutual funds that invest in complex options strategies that have the effect of moving in the opposite direction of whatever index they are designed to mirror. They are expensive to own for this very reason, because the underlying options strategy requires a lot of trading and carries with it extraordinary risks that the strategy will not work, or that it will work too well. These funds are designed for sophisticated investors who need to “hedge” against a highly concentrated equities position. They are not intended for the faint of heart because they are bets that the market will decrease. These contrarian funds come in many forms, some of the leveraged variety offered by fund companies like Direxion and ProShares.
Investing virtually all of any investor’s accounts in “contrarian” or “bear” funds is expressly opposed to basic concepts of asset allocation and diversification. Morgan Stanley’s compliance department should have been alerted to this sort of concentration and stepped in to do something about it. That is one of the primary purposes of brokerage firm compliance – to protect clients from brokers who believe they have a crystal ball. Instead of employing a disciplined, diversified approach, Mr. George went all-in on the belief that the domestic stock market would crash. As of the date of this post, the market is at fresh all-time highs across multiple sectors. Morgan Stanley should have protected the investor from Mr. George’s cloudy forecasting abilities.
If you or someone you know was solicited to invest in any “bear” or “contrarian” funds and have suffered losses as a result, please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation, free consultation with an experienced investor rights attorney. Stoltmann Law Offices, P.C. is a Chicago-based contingency fee firm offering representation on a nationwide basis. If we do not recover any money for you our services are free.