Investors Blind to Bond Risks

June 26, 2003 -- Most U.S. investors expect interest rates to rise in the near future, but they don't realize how that can hurt bond investments, according to a survey done for a mutual fund company.

The survey, conducted for ProFund Advisors by Harris Associates, found that 57% of investors believe rates will rise over the next two years, but 65% are unaware that rising rates generally are bad for bonds.

Only 35% of those surveyed said they believe the value of bond investments decreases when rates increase, compared 30% in April 2002, when the poll was first conducted for the fund complex.

Also in the latest sampling, 27% of respondents said they believe the value of bond investments increases when rates rise. The remaining 37% either did not know what effect rates have on bond investments, or believed the value stayed about the same when rates are hiked.

"Investors have been retreating to bond funds throughout the bear market in equities, but this survey indicates that most are unaware of the risks posed to bonds by a possible rise in rates," said ProFund chairman and chief executive Michael L. Sapir.

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