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Big Split Between Investors, Advisors on Global Bonds: BNY Mellon

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With rising interest rates in the U.S., now may be an opportune time for investors to consider diversifying into global bonds, the Bank of New York Mellon says.

However, a new BNY Mellon survey of financial advisors and retail investors finds that while a majority (56%) of financial advisors recommend holding at least some global fixed income securities in an investment portfolio, only 30% of retail investors reported having any.

The survey included 201 financial advisors and 356 retail investors (defined as active in their own investment decisions and having $100,000 or more in investable assets).

The survey finds that financial advisors are much more likely than retail investors to prioritize global fixed-income securities.

According to the survey, 38% of retail investors surveyed – compared with 63% of financial advisors – believe it’s important that their portfolio includes global fixed income securities.

Global fixed income has its benefits right now, as Raman Srivastava, co-portfolio manager for the Dreyfus/Standish Global Fixed Income Fund, points out.

“The global bond market is at an inflection point – we believe the disconnect in global monetary policy has created an opportunity to generate positive fixed-income returns outside the U.S.,” Srivastava said in a statement. “The survey results highlight this may be an optimal time for investors to consider global fixed income securities as a core holding within their investment portfolio. Financial advisors can close this gap by educating investors on the impact of interest rate hikes on U.S. bond prices, as well as the potential benefits of diversifying their fixed income portfolios across global markets.”

Because of the divergence in global interest rates, that means potentially better opportunities abroad than in the U.S. Global fixed income also has the potential to minimize risk. Investors can de-risk their core fixed income allocation through global diversification, according to BNY Mellon.

For retail investors, some of their hesitation to hold global fixed income may be due to several misperceptions.

The survey finds there’s a lack of understanding regarding the relationship between interest rates and bond prices. According to the survey, 40% of retail investors polled were unaware that as interest rates increase, bond prices generally go down.

There’s also a misperception among retail investors of the prevalence of global bonds, according to the survey.

The survey finds that 79% 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% (when the actual percentage of non-U.S. opportunities is 60%).

The data shows that there is a significant opportunity for financial advisors to impact retail investors’ attitudes toward global fixed income.

According to the survey, 44% of retail investors with an advisor believe it is important to include in their portfolios some fixed income exposure outside of the U.S., compared with 26% of retail investors without an advisor.

This gap is similar when looking at the percentage of investors that actually hold at least some global securities in their investment portfolios. According to the survey, only 16% of retail investors without an advisor hold global fixed income securities in their investment portfolio, whereas 38% of retail investors with an advisor hold global fixed income.

While advisors clearly play a significant role, the survey finds that their recommendations are not reaching all retail investors.

According to the survey, 84% of financial advisors say they have given some advice on global fixed income allocation. However, 44% of the retail investors with an advisor say that they have not received any advice on global fixed income over the past year.

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