PLANADVISER - September/October 2021 - 12

trends
The news that drives the retirement
plan adviser industry
The Bond 'Misclassification' Debate
Accusations
about overblown
bond ratings,
by Morningstar,
still need to be
proved, advisers
say. But, if true,
this could affect
investor capital flows
and the amount
of risk that bond
investors take
ALMOST two years into " a conversation "
between the National Bureau of Economic
Research and Morningstar as to the proper
classification of the latter's bond funds,
there is still no resolution.
In November 2019, the bureau published
a paper in its working paper series: " Don't
Take Their Word for It: The Misclassification
of Bond Mutual Funds. "
The authors reported key findings that,
raise some tricky questions for
if true,
the mutual fund analysis and reporting
industry. Specifically, the authors stated
that bond fund managers are prone to
misclassifying their holdings, to the extent
that these misclassifications have a real
impact on investor capital flows-and on
the amount of risk bond investors take.
The study compared Morningstar bond
fund reports with various funds' actual
portfolio holdings, as the three authors
studied and identified them. The authors
found
" significant misclassification
of
fund riskiness across the universe of all
bond funds, with up to 31.4% of all funds
misclassified in recent years. "
" Many funds report more investmentgrade
assets than are actually held in their
portfolios to important information intermediaries,
making these funds appear
significantly less risky, " the report warns.
According to the researchers, the funds
were aiming to earn a higher credit-quality
rating in the oft-consulted Morningstar
Fixed-Income Style Box. If the fund
manager reported a BBB-portfolio-while
still holding many BB-bonds-the fund
could move into the medium credit-quality
tier. Assuming the usual positive correlation
between risk and return, the misclassi12
| planadviser.com September-October 2021 Art by Guille Manchado
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PLANADVISER - September/October 2021

Table of Contents for the Digital Edition of PLANADVISER - September/October 2021

Masterminds of the Plan
"PLANADVISER’s 2021 Top 100 Retirement Plan Advisers"
How to Optimize Connections
Defining Roles
Building Strategic Partnerships
Different Strokes
Cybersecurity Considerations
Provider Recommendations
PLANADVISER - September/October 2021 - Cover1
PLANADVISER - September/October 2021 - Cover2
PLANADVISER - September/October 2021 - 1
PLANADVISER - September/October 2021 - 2
PLANADVISER - September/October 2021 - 3
PLANADVISER - September/October 2021 - 4
PLANADVISER - September/October 2021 - 5
PLANADVISER - September/October 2021 - 6
PLANADVISER - September/October 2021 - 7
PLANADVISER - September/October 2021 - 8
PLANADVISER - September/October 2021 - 9
PLANADVISER - September/October 2021 - 10
PLANADVISER - September/October 2021 - 11
PLANADVISER - September/October 2021 - 12
PLANADVISER - September/October 2021 - 13
PLANADVISER - September/October 2021 - 14
PLANADVISER - September/October 2021 - 15
PLANADVISER - September/October 2021 - 16
PLANADVISER - September/October 2021 - 17
PLANADVISER - September/October 2021 - Masterminds of the Plan
PLANADVISER - September/October 2021 - 19
PLANADVISER - September/October 2021 - 20
PLANADVISER - September/October 2021 - 21
PLANADVISER - September/October 2021 - "PLANADVISER’s 2021 Top 100 Retirement Plan Advisers"
PLANADVISER - September/October 2021 - 23
PLANADVISER - September/October 2021 - 24
PLANADVISER - September/October 2021 - 25
PLANADVISER - September/October 2021 - 26
PLANADVISER - September/October 2021 - 27
PLANADVISER - September/October 2021 - How to Optimize Connections
PLANADVISER - September/October 2021 - 29
PLANADVISER - September/October 2021 - 30
PLANADVISER - September/October 2021 - 31
PLANADVISER - September/October 2021 - Defining Roles
PLANADVISER - September/October 2021 - 33
PLANADVISER - September/October 2021 - Building Strategic Partnerships
PLANADVISER - September/October 2021 - 35
PLANADVISER - September/October 2021 - Different Strokes
PLANADVISER - September/October 2021 - 37
PLANADVISER - September/October 2021 - Cybersecurity Considerations
PLANADVISER - September/October 2021 - Provider Recommendations
PLANADVISER - September/October 2021 - 40
PLANADVISER - September/October 2021 - Cover3
PLANADVISER - September/October 2021 - Cover4
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https://www.planadviserdigital.com/planadviser/may_june_2018
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