Bond investors look to reduce risk

Risk optionsFrustrated with low interest rates across Europe, nearly half (45%) of institutional investors in a survey say they have been forced to invest in riskier bonds to maintain attractive yields.

Risk optionsFrustrated with low interest rates across Europe, nearly half (45%) of institutional investors in a survey say they have been forced to invest in riskier bonds to maintain attractive yields.

However, of the 105 international institutional investors surveyed in October, nearly 20% say they will reduce their risk exposure to bonds – 8% say the reduction will be “significant”.

NN Investment Partners sponsored the survey and Tarek Saber, a lead portfolio manager at the firm, says investors can still maintain upside returns while reducing risk in their portfolios by adding convertible bonds to the mix.

Convertible bonds have about a 90% correlation to equities and, according to Saber, half the volatility.

Nearly two in five respondents agree that convertibles provide bond-like protection with an equity upside, while 11% say they provide equity-like returns with half the volatility; 13% say convertibles are the best proxy for equities.

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