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Re: Unhedged International Bond Funds
Old 01-28-2005, 01:24 PM   #21
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Re: Unhedged International Bond Funds

I carry about 10% international bonds in my portfolio, and have just switched from a mixture of various hedged funds to a single Pimco Foreign Bond (unhedged) position (PFUIX). It is a medium term bond with .5% fees.

The nice thing about foreign bonds as an asset class is their low correlation with anything else. They range from basically zero correlation with international large equities to .33% correlation with US bonds. (These are 1-year correlation coefficients). And their average returns are attractive for med term international bonds: about 8% over the past 10-20 years.

I got unhedged foreign bonds for the reasons stated in previous posts: I felt I was wasting my $ paying for hedges when what I really wanted was diversification into other currencies, so why would I want to pay for hedges?

I also dropped my previous hedged 2-year global bond fund from DFA, since all the return seemed to be eaten up in hedging costs,. There is no unhedged 2-year bond fund, so thinking about it I just said "Go Penfed CD" and now am locking in some cash yields that way.

with only pulling out 4% a year from the portfolio, I am not one of those who worries a lot about having everything in my base currency. I want diversification into good asset classes that move differently, so I can have low volatility and a reasonable return. (overall my portfolio produces historical returens of about 9% with standard deviation of about 7%, ie SP500 returns with half the volatility.)

This notion of a little more yield and no more risk (or less risk at the same yield) is the basis for the whole efficient frontier discussion, and is made possible through Modern Portfolio Theory benefits of diversification. (Bernstein, Armstrong). It is the closest I've found to investment alchemy and it works for me.
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Re: Unhedged International Bond Funds
Old 01-29-2005, 10:11 AM   #22
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Re: Unhedged International Bond Funds

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I carry about 10% international bonds in my portfolio, and have just switched from a mixture of various hedged funds to a single Pimco Foreign Bond (unhedged) position (PFUIX). *It is a medium term bond with .5% fees.
So, how are you getting the institutional version of the Pimco fund? The non-institutional ones (PFUAX, PFRCX, and PFBDX) have combinations of 12b-1 and redemption fees out the wazoo. You're not investing $5M in PFUIX are you? Or is it some sort of agglomeration through a planner?
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Re: Unhedged International Bond Funds
Old 01-29-2005, 03:13 PM   #23
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Re: Unhedged International Bond Funds

Hyper,
Yes, I have access to this fund through my fee-only DFA planner at less than the normal institutional minimum. It has worked for all the Pimco funds as well as things like QRAAX (commodiites).
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Re: Unhedged International Bond Funds
Old 01-29-2005, 03:50 PM   #24
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Re: Unhedged International Bond Funds

I thought about buying either a foreign currency position or a bond fund. *I thought it through and felt I would just be setting myself up for the same monetary devaluation problem that I am seeking to avoid leaving dollars for Euros, yen, pounds and so forth. *Every county spends too much and uses its currency and its international floating exchange as a form of operating capital. *Sooner or latter the currency will become subject to fiat decisions that crash its value.

I opted instead to invest in international commodity based funds and global equity market based funds as a way to counter the sell off of US soverignty. *All governments can print and collapse their curency, like the US is doing today, but global enterprise and especially global commodities are much truer residuals to value and will survive the enevitable collapse of any fiat currency. *(By the way, gold is not the answer...its a tool for con men and bunko artists) *

The dollars drop is really just another iterations of a much larger national agenda and is part of a process to make the US a "free trade" zone, and includes NAFTA, a no border policy, off shoring the industrial base and so on. *When the process finds its equilibrium we will wake up to find we live in the "new second world" economic phase of US history. *Global corporations will be, if they are not already, the real proxy for the power of nations.

My favorite "dollar proof" funds:

PCRDX (PIMCO REAL RETURN)
UMESX (EXCELSIOR NATURAL RESOURCES)
VHGEX (Vanguard Global Equity)

Check them out, they done well in real terms against any number of currencies.

LEX
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Re: Unhedged International Bond Funds
Old 01-29-2005, 07:07 PM   #25
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Re: Unhedged International Bond Funds

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I opted instead to invest in international commodity based funds and global equity market based funds as a way to counter the sell off of US soverignty. *All governments can print and collapse their curency, like the US is doing today, but global enterprise and especially global commodities are much truer residuals to value and will survive the enevitable collapse of any fiat currency. *(By the way, gold is not the answer...its a tool for con men and bunko artists) *
1) Isn't a commodity based fund going to hold gold and other metals? Seems contradictory to your last statement.
2) How can global enterprise have "truer" value when the entire financial reporting system that we have set up depends on these fiat currencies? Sure, corporations have assets that should be fairly valued regardless of what the local currency is doing, but that still doesn't mean that they can always outlast currency manipulations by the government. Without a stable underlying currency to act as a store of value, I think corporations are going to have a tough time, regardless of how well the business itself is doing.
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Re: Unhedged International Bond Funds
Old 01-29-2005, 11:35 PM   #26
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Re: Unhedged International Bond Funds

All good points; in the short term bonds can be very effective investments. *However, I spent my working life in oil and mining, and have developed my own investing methods which have worked for me and are in large part the reason I am now ER'd.

My basic premise is that I invest in assets, and keep a very light weighting in what I call IOU's, such as bonds or CD's. *I will keep about two - three years of liquidity in my accounts, but thats not what I consider working money, that's money that I have already harvested to live on. *I had this premise for asset based investing since the 1970's, though I would confine my investing exclusively to oil and mining companies. *It seems to work, at least for me.

The Commodity funds do have gold, but the main driver in these funds are the industrial commodities, including oil, which are so basic to any economy that it is as close a real metric of value for my purposes. *It is impossible for any government to "print more oil or copper" and dilute its intrinsic value, though each government can and does over produce its domestic resources, which is the source of the cyclical nature of the natural resources market. *

I refered earlier to my distain for gold promoters in the context of those that advocate owning gold as a form of currency surrogate. *Gold is still a vital industrial metal (theres gold and silver circuitry inside your computer) and at that level of market derives its value based on economic utility rather than arbitrary price transfers.

The fiat currencies may present a challenge to global equities, but these companies can do the curency hedging for me as an investor, and they will do that and more to preserve asset value, including inventory controls, marketing adjustments and so on. *Those that do not perform this type of asset preservation well will under perform and drop out of most rationally manged portfolios. So your point of currencies impacting some businesses is a valid one, but any fund manager is going to sell this business out of the mix and replace it with one that is going to make the numbers work. *I liken the funds to small darwininan engines, sorting out what works and what fails so that I can enjoy my tropical umbrella drink by the pool without much commercial concern. **In my opinion, based on my research, any well managed multinational, such as P&G or Coke, will move to prevent loss from a declining currency by price and market strategies in a much more effective mark to market than a government issueing its debt.

Finally, in a period of currency debasment, I want to own assets with intrinsic value, including real property, base metals, oil, and proven global business models, rather than financial instruments. These build and maintain the values that currencies attempt to passively measure. Its an Adam Smith thing....

This is what works for me, and seems to be as currency (and for that matter, country risk) nuetral as possible without forcing me into becoming a pit trader in the FOREX market. *8)
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Re: Unhedged International Bond Funds
Old 01-30-2005, 09:17 AM   #27
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Re: Unhedged International Bond Funds

Gentlemen, thank you for a very intelligent discussion.

If I may recap, Nords and Lex have indicated that
investing in unhedged foreign debt is not their
cup of tea while Brewer, Soupxcan and ESRbob
nod in the affirmative ..... Bob_Smith and Cut
remain neutral.

As for me, I can't decide so I will continue to ponder
for awhile longer.

Thanks,

Charlie
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Re: Unhedged International Bond Funds
Old 01-30-2005, 09:53 AM   #28
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Re: Unhedged International Bond Funds

Chuck-Lyn:

I would suggest it more important that one controls their wealth, and not the other way around. Its all about the quality of life per dollar, however one measures this concept; life style quality is among the single most valuable assets any of us Er's have, no matter how we finance this wonderful state of affairs. "Keep your servants well managed and your tools well sharpened".
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Re: Unhedged International Bond Funds
Old 01-31-2005, 01:49 PM   #29
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Re: Unhedged International Bond Funds

Yeah i invest with the same mindset, cut-throat. I've added a nice stake of international stocks to my domestic ones with the intent of both potentially enchancing returns while decreasing risk at the same time.

Williamson's "Low Risk Investing" had a chart in it that demonstrated this concept too. Granted, it wasnt very true in the 90s though.
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Re: Unhedged International Bond Funds
Old 02-02-2005, 09:24 PM   #30
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Re: Unhedged International Bond Funds

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So, how are you getting the institutional version of the Pimco fund? The non-institutional ones (PFUAX, PFRCX, and PFBDX) have combinations of 12b-1 and redemption fees out the wazoo. You're not investing $5M in PFUIX are you? Or is it some sort of agglomeration through a planner?
Hello Hyperborea,

I understand that ESRBob is getting access through his planner. However , the Pimco Institutional funds are also available with a transaction fee at a number of brokers (Vanguard, Ameritrade+).

Oliver
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Re: Unhedged International Bond Funds
Old 02-03-2005, 12:00 PM   #31
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Re: Unhedged International Bond Funds

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Hello Hyperborea,

I understand that ESRBob is getting access through his planner. *However , the Pimco Institutional funds are also available with a transaction fee at a number of brokers (Vanguard, Ameritrade+).
Thanks Oliver. I'm not sure that my brokerage (TD Waterhouse) does. I'm also not sure that it is worth making the move for these nor if I would be moving for one benefit and still coming out about equal or worse.
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Re: Unhedged International Bond Funds
Old 02-08-2005, 08:04 PM   #32
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Re: Unhedged International Bond Funds

Hi Hyperborea,

TDW requires 100k unless you already own another institutional Pimco fund eg pcrix. If you do, you can exchange any amount into the new institutional fund.

Oliver
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