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Old 02-08-2013, 03:53 PM   #21
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Hedging is a hidden cost of the fund (maybe 0.25%), so that is one big negative for a low return fund. Even if all your liabilities are in US dollars, you should want some currency diversification. It helps protect against inflation if the dollar weakens (personally, I have no opinion on the future of the dollar). Also, your social security and pensions will be denominated in dollars as well as your future earning power, so your portfolio is probably more skewed to dollars than you may realize.
.....
I'm not sure if your suggestion that my portfolio is more skewed to dollars than I realize is true. 15% of my retirement investments are in international stocks, and on top of that are non-US operations of my domestic stock investments.
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Old 02-08-2013, 05:30 PM   #22
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Thanks a lot for posting this. I just emailed Vanguard last month asking if they were considering an EM or Int'l debt fund. The same weekend I saw they are on FB, so I asked the same question only I said int'l in one and EB in the other. Surprisingly they emailed me saying they noticed I asked a similar question on their social media site and wanted to know if I meant Int'l when I typed EB. Who would think they would notice the same person was asking the same question on FB??

ANYHOW...

Quote:
The international bond fund from fidelity has been taking some pretty big dips lately.
Like someone else mentioned...FNMIX did beautiful last year...20% return. Vang tot intl bond fund will have 20% Japan in it...sounds good to me.

Hedged vs unhedged.....I haven't purchased either of these yet, but here is a comparison of Wisdom Tree hedged Japanese fund vs EWJ unhedged fund. I feel safer myself with a hedged fund.

DXJ Basic Chart | WisdomTree Japan Hedged Equity Stock - Yahoo! Finance
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Old 02-08-2013, 09:52 PM   #23
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I'm not sure if your suggestion that my portfolio is more skewed to dollars than I realize is true. 15% of my retirement investments are in international stocks, and on top of that are non-US operations of my domestic stock investments.
Chances are that most of the non-US operations of domestic stocks are hedged. Also, I would guess that international companies with US sales are less likely to hedge their dollar exposure. In other words, it might balance out and you end up with 15% (or maybe even less) foreign currency exposure in your situation. And for most people, the present value of their social security (and home, etc) is a significant percentage of their net worth, further diluting their foreign currency exposure.

I am not advocating a certain level of foreign currency exposure. What I am saying is that this is a diversification issue, and those who are unexposed to this risk factor have an inferior portfolio, even if their future spending is in dollars only. If I were not an expat, I would be happy with the exposure I receive solely in my international equities (which represent slightly more than half my equity holdings). Since I am an expat, I would like exposure closer to an international basket of market-weighted currencies.

I also consider things like commodities futures funds exposure to foreign currency.

I think this is a bigger issue for US investors with a bond heavy portfolio who have less currency diversification opportunity within their equity portfolio. They are more exposed to inflation risk than they may realize.
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Old 02-09-2013, 10:13 AM   #24
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What role does something like this play in International Investing?

Google Search - Venezuela Devalues Currency

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CARACAS, Venezuela — Venezuela announced Friday that it was devaluing its currency, a step that had long been deemed necessary but could push the spiking inflation even higher.

The devaluation, which lowered the currency’s value against the dollar by nearly a third, was aimed at solidifying government finances and easing a tight market for dollars that has choked back imports and led to shortages of basic goods
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Old 02-09-2013, 01:10 PM   #25
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[QUOTE][What role does something like this play in International Investing?
/QUOTE]

That's why you want to make sure your int'l bond funds are hedged. China always did the same thing so they would sell more products at a lower price. Big Ben started doing the same thing with the QE he has been doing. I think he is finished taking the value of the dollar down, but all the other countries are doing the same thing now. Europe is talking about devaluing the Euro now.
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Old 02-10-2013, 10:10 AM   #26
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What role does something like this play in International Investing?

Google Search - Venezuela Devalues Currency
Venezuela is a kleptocracy run by a pseudo-dictator that does not have fair or transparent or free markets. It does not even qualify for inclusion on a Frontier Market Index, let alone a developing market index or, most importantly, a developed market index as we are discussing here. A hedging contract could not even be purchased on Venezuelan Bolivars, let alone a low cost hedging contract -- it is a thoroughly non-convertible currency.

So to answer your question, it is not even tangentially relevant to this discussion.
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Old 02-10-2013, 10:58 AM   #27
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My guess is that if you looked at bonds of countries that eventually devalued their currencies, you would find that the bond market had anticipated this sort of thing and thus the bonds were not investment grade.

Most likely the countries that devalue would be off the list of a fund like Vanguard's well before any devaluation event. Decent active bond fund managers like Gross at PTTRX would not hold such bonds.
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Old 02-10-2013, 05:54 PM   #28
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So to answer your question, it is not even tangentially relevant to this discussion.
Did you miss the "something like this" part? If so, let me point it out to you.
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Old 02-11-2013, 06:40 AM   #29
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Did you miss the "something like this" part? If so, let me point it out to you.
Hi Ron, I did my best to answer your question. If you can be more specific, I will do my best to answer. Thanks.
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Old 02-11-2013, 07:34 AM   #30
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I think Kramer was being polite in his earlier comments on Venezuela.

There are two discussions going on. One is currency hedging of an int'l bond fund. I agree with Kramer that one of the utilities of that asset class is the currency exposure, hedging makes it more expensive and less useful. In addition, risk level of the fund is less important than total portfolio risk, and, as pointed out, an unhedged fund is a more effective diversifying agent.

Quote:
What role does something like this play in International Investing?
The Venezuelan devaluation does not have much application to this discussion because it is an event of a currency not freely traded in an open market and who's bonds are not rated by any agency. They are not eligible to be part of the portfolio. The Int'l bond fund will be composed of sovereign bonds of govt's that have high credit ratings and whose currencies trade freely.
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Old 02-11-2013, 09:36 AM   #31
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The Int'l bond fund will be composed of sovereign bonds of govt's that have high credit ratings and whose currencies trade freely.
It will be both government bonds and corporate bonds. From Vanguard:
Quote:
Vanguard Total International Bond Index Fund will seek to track the performance of the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which covers approximately 7,000 high-quality corporate and government bond issues from 52 countries in Asia, Europe, and Latin America, as well as from Canada.
As of December 31, 2012, the index's top country holdings included Japan (23%), France (12%), Germany (11%), and the United Kingdom (9%). The index caps its exposure to any single bond issuer, including a government, at 20% to meet regulated investment company (RIC) tax diversification requirements.
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Old 02-11-2013, 09:44 AM   #32
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It will be both government bonds and corporate bonds. From Vanguard:
Right. Not just OECD members but EM countries as well. My point is still valid - to be part of the investment portfolio the bond needs to be highly rated and based in a freely traded currency.
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Old 02-11-2013, 09:52 AM   #33
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Right. Not just OECD members but EM countries as well. My point is still valid - to be part of the investment portfolio the bond needs to be highly rated and based in a freely traded currency.
Yes, I was just making it clear that the fund is not solely govt bonds, it will also hold bonds of private companies.
Of course we still have the different issue of the much-damaged credibility of rating agencies, but we'll overlook that.
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Old 02-11-2013, 10:12 AM   #34
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Yes, I was just making it clear that the fund is not solely govt bonds, it will also hold bonds of private companies.
Of course we still have the different issue of the much-damaged credibility of rating agencies, but we'll overlook that.
Got it. No disagreement.
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Old 02-11-2013, 01:14 PM   #35
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Also see Should You Add International Bonds to Your Portfolio? While I agree there is no need to rush, I may get to the 20% of bond allocation over a couple years.

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So Should You Buy The New Fund?

The flip side of the decision to currency-hedge the Total International Bond Index Fund is that its performance will be much more closely correlated to the performance of U.S. bond funds than would be the case if the fund were not currency-hedged. In other words, the decision of whether or not to include this fund in your portfolio will probably not be on the list of most important investing decisions you’ll ever make.

As a general rule, I think it’s wise to watch something for a few years — long enough to have a good handle on how it tends to behave — before putting a large portion of your portfolio into it.

Because my wife and I currently use the Vanguard LifeStrategy Growth fund (with its 80% stock, 20% bond allocation) for our retirement savings, that means 4% of our retirement portfolio (20% of the 20% bond allocation) will be put into this new fund. That’s a pretty modest allocation — not enough to cause me any worry whatsoever.

That said, if we instead used a DIY portfolio of individual index funds, I would probably be inclined to wait and watch the fund for some years before moving anything into it.

There’s no need to rush.
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Old 02-11-2013, 08:26 PM   #36
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As of December 31, 2012, the index's top country holdings included Japan (23%), France (12%), Germany (11%), and the United Kingdom (9%). The index caps its exposure to any single bond issuer, including a government, at 20% to meet regulated investment company (RIC) tax diversification requirements.
I wonder if that 23% for Japan is a misprint and it should be 13%? The reason is in the top holdings they are way over allocated to Japan. In decreasing order 13% would still put Japan 1st.
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Old 02-11-2013, 10:18 PM   #37
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[QUOTE=CoolChange;1281591]+1

I am also still looking for a good (inexpensive, ideally unhedged, without the government/sovereign index issues already mentioned) non-USA bond fund or set of funds for my target AA. I have decided it is time for me to shift my AA away from its current high equity allocation; but, I would like to avoid skewing my AA to United States returns any more than it already is. (No, I am not predicting doom and gloom for the USA; but, I am a believer in geographic diversification for a variety of reasons.)


I've done well with GIM (Templeton Foreign), EDD (dangerous--see 2009), and Fidelity New Markets.

I've bought GIM at a discount on several occasions from about 7 or 8 years ago to four years ago, sold 25% or so several times when it went to premium, then bought it back. I've now got gains that equal the position. If we get a downturn, I'll probably buy some more on a limit order.

I had a bit of EDD in '08 and bought more twice on the way down and 3-4 more on the way back up in 2009, sold in 2010 and 2011, then bought a little back for the yield and discount. It's volatile.

I think GIM, if bought at a discount (the yield pays while you wait), and Fidelity are fine funds. Fidelity is currency hedged but that's not a bad thing, necessarily.
I'm interested in foreign dividend funds also, but only recently bought Matthews China Dividend. We'll see how that works out in 5 years. I sold Fidelity China back in 2007; got lucky on the timing on that one too.
The above is all market timing, of course. I wouldn't suggest anyone try to duplicate it; I probably can't. But I do think the GIM illustrates the attractiveness of buying closed end funds at a discount, then managing the position when it goes to premium. Probably more trouble than it's worth.
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Old 02-14-2013, 07:32 AM   #38
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Pimco ETF: A new way to bet against the dollar

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Pimco (PTTRX), the world's largest bond fund, just launched a new exchange traded fund based on a basket of currencies likely to benefit from dollar weakness. The ETF began trading Tuesday under the ticker FORX (FORX).
I didn't research this but it is actively managed so expense might be an issue.

Quote:
Unlike other currency-based ETFs, FORX is actively managed and includes positions in currencies and local-currency bonds. That gives investors more direct foreign exchange exposure and is more predictable than indirect currency bets in the commodities and stock markets, according to Mather.

The ETF is made up of currencies from 19 countries. Its largest holdings are in the currencies of Norway and Canada. Russia, Mexico and Sweden are also top holdings in the portfolio.
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Old 02-15-2013, 04:37 PM   #39
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Interesting article on this new fund:

New international bond fund shows promise - CBS News
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Old 02-15-2013, 05:32 PM   #40
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I'll wait to see the composition, duration etc but it looks pretty good at first glance. An ER of .20% for a $10k investment in an Int'l bond fund is attention getting. The devils in the details but I'll take a look for diversification's sake.
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