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How advisors are balancing income needs and rising rates

Timely insights on the issues that matter most to investors.

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      By Advisor Top-of-Mind Index, Tap into the perspectives of financial advisors

      Boston - Generating income for clients while also navigating rising interest rates is a key challenge for financial advisors in this market environment. With the Federal Reserve expected to hike rates, some advisors are shortening duration and also using high-yield bonds and floating-rate loans in search of income.

      The Eaton Vance Q4 2018 Advisor Top-of-Mind Index (ATOMIX) surveyed more than 600 financial advisors and found that advisors are actively working with their clients to prepare for anticipated rate hikes over the next 18 months.

      Generating income for their clients is now the leading concern of financial advisors, ranking 129.7 on the latest ATOMIX survey, a 24% increase since the second quarter.

      In general, advisors said they see a challenging bond market, and strategies to cope include shortening duration and considering emerging markets for income. According to the survey:

      • 45% of advisors said they are shortening bond duration.
      • 42% have repositioned portfolios to help mitigate interest-rate risk.
      • 64% are allocating to short-duration funds to protect against inflation.

      Additionally, the majority of advisors (74%) believe the bond market will either flatten or dip into negative territory within the next six months.

      Regarding specific strategies for generating income, high-yield bonds and floating-rate loans were at the top of the list for advisors, according to the survey results.

      Blog Image ATOMIX Income Q418 Nov 16

      "Floating-rate loans offer an important escape hatch from bonds today, delivering not only the much-needed higher income, but also the asset class's defining 'anti-bond' properties" says Scott Page, Co-Director of Floating-Rate Loans at Eaton Vance. "They have yields rivaled by few other asset classes, while the absence of bond duration helps to diversify fixed-rate positions."

      To learn more about the Advisor Top-of-Mind Index and the latest quarterly survey, visit the ATOMIX page.