WEEKEND INVESTOR --- The New Basics: Is Your Bond Strategy Wrong?
Some prominent investors say danger is lurking in the decades-old method used to build bond portfolios. If they are right, small investors might want to rethink their strategies.</br></br>The crux: The traditional method of weighting government bonds by "market capitalization" -- the value of a country's bonds in the market -- is leading to risky allocations to highly indebted countries, experts say.</br></br>Instead, some money managers are switching to other measures, such as gross domestic product, that reflect countries' capacity to pay off their debts.</br></br>In March, the managers of Norway's $600 billion sovereign-wealth fund said they would reallocate its government-bond portfolio to reflect the size of countries' GDPs instead of their market caps. That came soon after Citigroup and Research Affiliates launched bond indexes that weight countries by GDP and other measures.</br></br>And in May, Fidelity Investments launched a handful of bond funds with benchmarks that track GDP-weighted bond indexes.