Buying into foreign currency.

[modhatter]

My son has been urging me to look into buying some other form of currency due to the decreasing dollar and the huge current Fed. deficit. He is thinking along the lines of an eventual US monetary colapse.

I know of course investing in international stocks is somewhat of a hedge, but what about actual currency. I know nothing about this. Aren't there actual funds that do this? The only up side I see in doing this would be to preserve the buying power of your dollar. In other words there would not be any actual growth of the current dollar value.

Any comments or suggestions.

 

[brewer12345]

Look into international bond funds. I use GIM (closed end fund) for this, others use BEGBX. Unhedged, non-USD bonds offer decent returns and low correlation with US equities and bonds.

 

[modhatter]

What kind of return have you had with them in the last three years?

 

[Gone4Good]

What kind of return have you had with them in the last three years?

I use Loomis Sayles Global bond fund for the purposes brewer mentioned. It's a global fund so it includes some US exposure (about 1/3 currently). I might switch to a pure-play international.

Performance for Loomis & BEGBX is:

1yr 3yr 5yr
Loomis 1.33% 4.88% 10.82%
BEGBX 0.74% 5.27% 11.07%

 

[Delawaredave]

The Loomis Sayles, LSBRX, looks a lot more stable and less volatile than BEGBX.

LSBRX is also a 5 star by M*

Any thoughts on range overall % in a portfolio to devote to global bonds ?

 

[brewer12345]

Keep in mind volatility should be viewed in the context of what it addsto the total portfolio. Commodities are very volatile, but they tend to zig when stocks and bonds zag, so I really could care less how volatile they are in isolation.

I shoot for a 10% or so allocation to non-USD bonds. If GIM ever gets to a significant doscount to NAV again, I may well up it to 15%.

 

[brewer12345]

Oh yeah, GIM returns:

1 Year 3 Year 5 Year 10 Year
13.61% 12.96% 15.09% 11.30%

 

[Delawaredave]

If GIM ever gets to a significant doscount to NAV again, I may well up it to 15%.

I don't have any experience with closed end funds - GIM looks like 0.11% discount to NAV now - correct ?

What would be an attractive discount to NAV  ?

Thanks !!!

 

[brewer12345]

I don't have any experience with closed end funds - GIM looks like 0.11% discount to NAV now - correct ?

What would be an attractive discount to NAV  ?

Thanks !!!

GIM flops around from time to time. It doesn't get way out of whack most of the time, unlike some of the leveraged funds that can get to a 15+% discount/premium at times. I would be comfy buying it at NAV. I will sell mine if it gets to a 5% premium or better, and at a 5% discount or better I would up my allocation simply because I know that over time it will go back to NAV (or over) and the asset class is something I want exposure to. Management has a lengthy and solid track record and has even done tender offers in times when the discount to NAV was to large for too long (very unusual for a CEF).

I keep meaning to set aside a chunk of money to play with CEFs. It isn't too hard to find reasonably well managed fixed income CEFs with a less than rapacious management fee that have blown out to a 20+% discount to NAV. Not too painful to clip coupons while you wait for the thing to swing closer to NAV, even if it never gets even with NAV.

 

[mikew]

I don't have any experience with closed end funds - GIM looks like 0.11% discount to NAV now - correct ?

What would be an attractive discount to NAV  ?

Thanks !!!

You can check the historical discount at
http://www.etfconnect.com/

There is a link for the data since inception.

For GIM, I evaluate the discount in terms of the yield compared to treasuries and corporate bonds.
 
Mike

 

[Gone4Good]

Oh yeah, GIM returns:

1 Year 3 Year 5 Year 10 Year
13.61% 12.96% 15.09% 11.30%

Impressive. Given the performance I figured they were one of these closed end funds that uses leverage to juice returns . . . but that doesn't look to be the case.

I've wondered why LSBRX (and apparently BEGBX, too) isn't doing better considering the weak dollar . . . I wonder if they're being a bunch of dirty hedgers. That part of the portfolio has kind of been on autopilot. Maybe I need to take a second look.

 

[brewer12345]

Impressive.  Given the performance I figured they were one of these closed end funds that uses leverage to juice returns . . . but that doesn't look to be the case.

I've wondered why LSBRX (and apparently BEGBX, too) isn't doing better considering the weak dollar . . . I wonder if they're being a bunch of dirty hedgers.     That part of the portfolio has kind of been on autopilot.  Maybe I need to take a second look.

Nope, no leverage. I think one of the reasons they have done so well is that they tend to be pretty far out of the global bond index allocations, and they often take hefty bets on countries that are growing quickly and climbing the development scale (S. Korea has been the big one lately). That means there is a little more credit risk than holding JGBs or Bunds, but relative to the apparently minimal additional risk you get paid handsomely.

This is the only actively managed fund I own as a core position. I'd like to find something cheaper, but I doubt I will find something better.

 

[modhatter]

Very interesting on GIM fund. don't suppose you could explain to me NAV, and at what point it would be advisable to purchase. Need to understand the + and - of the NAV.

 

[brewer12345]

Very interesting on GIM fund.  don't suppose you could explain to me NAV, and at what point it would be advisable to purchase.  Need to understand the + and - of the NAV.

NAV is what the bonds the fund owns are actually worth. The fund can sell for more than the value of the bonds (premium) or less (discount). If you buy at a 5% discount to NAV, you are getting a dollar of bonds for 95 cents. If you buy at a 5% premium, you get a dollar of bonds for $1.05. Picking how biig of a discount is an art rather than a science. GIM goes to greater than a 5% doscount, but not that often, so I wouldbe happy to buy at a 5% discount, assuming you want exposure to the asset class.

 

[haha]

That means there is a little more credit risk than holding JGBs or Bunds...

Brewer, is there a way to buy bunds or Dutch euro bonds in a US account? Or would you have to own a foreign account to do this?

HA

 

[brewer12345]

Brewer, is there a way to buy bunds or Dutch euro bonds in a US account? Or would you have to own a foreign account to do this?

HA

I bet if you are a private bank client with $5+MM in assets with your international banker, no problem. Never seen them offered at Schwab, and I don't know of a market-based offering.

 

[mikew]

I was thinking of buying stock directly from foreign exchanges. I asked schwab and they said they could do it. I haven't gotten far enough to ask about comission etc. It might be possible to buy bonds the same way if you are interested.

Mike

 

[modhatter]

Well when it says -11%. Is that below NAV. (the discount)

 

[brewer12345]

I was thinking of buying stock directly from foreign exchanges. I asked schwab and they said they could do it. I haven't gotten far enough to ask about comission etc. It might be possible to buy bonds the same way if you are interested.

Mike

Heh, I doubt you will find it worth it to buy non-US equities directly through Schwab. Let's see, gotta convert your USD to local currency (spreads plus fees), buy the stock (fat commissions plus spread), eventually sell the stock (fat commissions plus spread), and convert your local currency to USD (spreads plus fees). No thanks. Why not just stick to ADRs of foreign companies listed in the US? I admit I was tempted to buy some shares of Bank of Valetta after a trip to Malta (its as pervasive as Banco Popular in Puerto Rico), but the MAltese stock exchange is both tiny and obscure.

 

[brewer12345]

Well when it says -11%.  Is that below NAV.  (the discount)

What you are seeing is that GIM was at a .11% (evleven basis points, not eleven per cent) discount to NAV. IOW, GIM was trading about flat with NAV at Friday's close.

 

[mikew]

Heh, I doubt you will find it worth it to buy non-US equities directly through Schwab. 

I don't doubt it. But I have a tendency to bang my head against walls to see if the wall is empty. I started checking it out because I got interested in Singapore and HK REITs. They are too new for ADRs and there isn't a good CEF that captures them.

 

[bpp]

Hi mike,

I don't doubt it. But I have a tendency to bang my head against walls to see if the wall is empty. I started checking it out because I got interested in Singapore and HK REITs. They are too new for ADRs and there isn't a good CEF that captures them.

You can do internet trading on the HK exchange through Nikko Cordial. Haven't done it myself (yet -- maybe some day), but the commissions and exchange spreads don't look too bad.

 

[mikew]

Hi Bpp

Thanks for the info. I thought they only traded in China. I may have to open a Japanese language account. Something I have been trying to avoid.

Mike

 

[bpp]

Hi Mike,

Oops, looks like the HK REITs (I checked for Champion, GZI, Link and Prosperity) are not available through Nikko Cordial's online trading system. Sorry for the bum steer.

Now, they will also let you do broker-assisted trades on foreign exchanges (as will Nomura), so you might be able to get access to more listings that way, though the cost of going that route was pretty high last I checked (something like 7,000 yen commission).

 

[Trillian49]

I bet if you are a private bank client with $5+MM in assets with your international banker, no problem. Never seen them offered at Schwab, and I don't know of a market-based offering.

Hi, I stumbled onto this board because I've been researching asset allocation ALL DAY! Have you heard anything about EverBank? The online site is at www dot everbank dot com. Click on the Currency CDs tab - you can invest in CDs in a number of foreign currencies. The yield on Icelandic kronas is currently over 13%. This is not something I have done, but I have been thinking about it.

I have a couple of closed-end funds - TEI and FAX - for my international bond exposure, but I will check out that GIM. I have also owned an open-end fund, PSAFX, which is a hedge against the US dollar.

Hope this helps,
~Trillian