NU Online News Service, Oct. 7, 2004, 5:15 p.m. EDT
Portfolios of U.S. government securities can give investors a false sense of security.[@@]
Standard & Poor’s Rating Services, New York, has delivered that warning in a new report that emphasizes that the presence of the words “government” or “federal” in a fund name are no guarantee of safety from market price losses.
Although securities issued by the U.S. government are typically highly creditworthy, all fixed-income securities and fixed-income funds hold a degree of risk, S&P says.
Funds with similar names can carry much different degrees of market risk, the rating agency says.
Over the past 10 years, “many investors in fixed-income were surprised and confused as rising rates caused the value of their funds to drop significantly,” S&P says. “Rather than relying on a fund’s name as a measure of risk, an investor should evaluate the fund’s eligible investments, strategies, duration, and current holdings to gain a better perspective of its potential risks and returns. Examining a fund’s historical returns might also provide some insight into a fund’s risk profile. The fund’s prospectus, marketing materials, statement of additional information and annual report also provide some insight into the objectives and eligible investments.”