Often investors become concerned about duration in a bond portfolio, believing that if interest rates rise, duration will increase the potential for losses.
Matt Brill, Senior Portfolio Manager of Invesco Global Bond Fund, discusses why a fixed-income portfolio should include some duration if it is to provide an adequate buffer when equities fall.
Investors should consider that there are mitigating factors – not all duration is created equal:
- Corporate securities may benefit from tightening credit spreads when interest rates rise
- Duration can provide a negative correlation to equities in the event of an equity correction or geopolitical event
- If duration is eliminated from a bond portfolio, the remaining exposure is typically credit spread – which is correlated to equities
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