Investors don't understand global fixed income, ignoring advisorsNews added by Benefits Pro on February 5, 2016

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Joined: September 07, 2011

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By Marlene Y. Satter

Investors are passing up opportunities in the global fixed-income market because they don’t really understand how those investments work.

That’s according to a new survey from BNY Mellon Investment Management, which found that 70 percent of retail investors hold no global fixed-income investments, and 62 percent don’t see global fixed income as important. As a result, they’re missing out on global diversification in that segment of their portfolios.

Advisors, on the other hand, are more savvy when it comes to incorporating global fixed income into a portfolio, with 63 percent saying it’s important that a client’s portfolio contain some global fixed-income securities.

In contrast, just 38 percent of retail investors think it’s important that they hold some global fixed-income investments.

And even if advisors are recommending it — 56 percent responded that they do so — clients aren’t listening, with just 30 percent reporting that they have such investments as part of their portfolios.

There are several reasons that both retail investors and advisors may not be making the most of global fixed-income investments. One reason is a lack of understanding on the part of retail investors of how they work; 40 percent of respondents said they didn’t know that as interest rates increase, bond prices generally go down.

In addition, only 12 percent of retail investors say they would increase the global diversification of their fixed-income allocation after a rate hike, despite the fact that more than a third (35 percent) of advisors would recommend a more globally diversified fixed-income allocation.

Another is lack of knowledge about how prevalent global bonds are. Seventy-nine percent of retail investors are either unsure of the percentage of bonds issued outside the U.S., or say that the percentage is less than 50 percent.

The actual percentage of non-U.S. opportunities is 60 percent. Even the majority of advisors — 59 percent — are either unsure of the percentage of bonds issued outside the U.S., or say that the number is less than 50 percent.

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