Portfolio Duration Doesn't Tell the Whole Story
Investors looking to gauge a fund's interest-rate sensitivity need to look past duration.
The inverse relationship between bond prices and interest rates is a central tenet of bond math. As rates rise, new, higher-coupon bonds become more attractive than previously issued lower-coupon bonds. To entice investors to buy those lower-coupon bonds, prices must fall. Eventually, higher bond yields will be good for investors, but the short-term pain hits investors where it hurts: lower investment returns because of the drop in bond price.
Experienced bond investors may look at a fund's duration (a measure of price sensitivity owing to changes in interest rates) to determine whether a portfolio is "protected" from rising rates. Duration, however, has several shortcomings. It's a good measure of interest-rate risk for noncallable U.S. Treasury bonds, but it becomes less predictive for funds with more credit risk, such as junk bonds, or those with unpredictable cash flows, such as mortgage-backed securities.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.