Many investors choose bond funds for their portfolios or retirement plans because they’re considered “safe.”
A new study from the National Bureau of Economic Research, which takes a hard look at how Morningstar classifies bond funds, suggests that might not be the case. Bonds might include a higher level of risk than investors are aware of.
Most investors are familiar with Morningstar ratings and many make investment decisions based on those ratings. Researchers in this study allege that Morningstar misclassified risk level for nearly one-third of actively managed fixed-income funds.
The study examined almost 1300 fixed income funds over the past 16 years and found that 99% of the misclassified funds were, in fact, riskier than their Morningstar classification.
Money.com explores the issue in their recent article.