Diversifying a Concentrated Stock Position in 2023
By: Susan Song, Regina Meng, Mike Yan and Craig McCann (Jun 2023)
Twenty years ago, we evaluated brokerage firms' recommendation that investors
should diversify a concentrated stock position by buying additional stocks on margin[McCann and Luo, 2003]
Twenty years later, some brokers and advisors continue to recklessly recommend
that their clients borrow against concentrated stock positions and purchase additional
stocks to diversify. In this note, we use recent stock market returns to update our previous work which used data from the 1990s. We also extend the analysis to cover a larger universe of stocks and employ more sophisticated simulations. Our updates and enhancements show that this "hold, borrow, and buy some more" strategy remains inconsistent with basic principles of prudent investment management; leveraged diversification perversely increases risk and or lowers expected returns.
UBS's YES Was Not Same Iron Condor Product as at Credit Suisse
By: Craig McCann, Regina Meng, Edward O'Neal (Mar 2022)
Monthly returns from the Credit Suisse and UBS time periods - including for subperiods of similar characteristics UBS blames for the 2018 losses - show these two programs were very different and that UBS's program was much riskier and had much more directionality than the Credit Suisse program. We find market conditions in 2018 when YES lost 18.44% were much less dramatic than in 2008 when Credit Suisse lost only 2.42%
UBS's Yield Enhancement Strategy ("YES") Returns - and then the Losses - Were Caused by Equity Market Exposure
By: Craig McCann, Regina Meng, Edward O'Neal (Oct 2019)
UBS marketed YES as market-neutral based on a combination of four options is sometimes referred to as an "Iron Condor". UBS accounts subjected to YES treatment suffered losses of 12% to 14% in December 2018 when the S&P 500 dropped 9.2% because the overlay was more than 100%
In this paper the authors we explain the option basics necessary to understand the YES strategy and illustrate how UBS actually implemented the strategy with predictably disastrous results. They also present how UBS described the strategy in its marketing materials.
