Clients have yet to appreciate the benefits of fixed-income investing.
That is what Incapital LLC found after surveying financial investors nationwide.
Incapital, a Boca Raton, Fla., underwriter and distributor of fixed-income securities, surveyed 200 financial advisors to learn more about their clients’ perceptions and behaviors about fixed-income investing.
Over 70 percent of advisors surveyed said that it would take a significant correction in the equity markets to change their clients’ perception of bonds. For now, the seesaw battle of fixed-income investments against the more bullish equity market has tilted in favor of the latter.
Incapital found that the two primary assets investors are using to generate income are dividend-paying stocks and equity income mutual funds. Clients allocated 46 percent of their investment assets to equities, 27 percent to fixed income, 14 percent to cash investments, 9 percent to alternative investments and 4 percent to other investments.
Despite a client preference for equities over fixed income, half of advisors surveyed said they expected their clients to increase allocations to the latter over the next 12 months.
Only 29 percent of advisors said they expected an increase in client equity investments over those in fixed income.
Incapital found that 76 percent of advisors reported that clients cited protection of investment principal as a top priority, even though many cited a preference for investing in equities over less-risky fixed-income investments.
The advisors surveyed said they wanted three specific benefits for their clients from fixed income: Over half of them—53 percent—wanted bonds to provide a predictable rate of income for their clients; 51 percent wanted bonds for portfolio diversification; and just 38 percent wanted the investments for their return of principal at maturity.
Bond ladders stagger the maturity of the securities, allowing people to reinvest proceeds at regular intervals, and many advisors cited this as an extremely effective investment strategy for managing clients’ interest rate risk. That was one of the factors making fixed-income investments more appealing to them.