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VG to offer internat'l bond idx funds
Old 11-05-2011, 10:22 AM   #1
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VG to offer internat'l bond idx funds

Saw this from Vanguard. The referenced research paper is interesting; recommending 20-40% of FI portfolio be foreign, and presents a case for the use of currency hedging. In the context of VG's usual long -term viewpoint, of course. I'm not anxious to jump in any time soon...
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Old 11-05-2011, 10:36 AM   #2
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Its about time!

Looks like there will be an International Bond Index and an Emerging Market Government Bond index.
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Old 11-05-2011, 10:37 AM   #3
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Originally Posted by BOBOT View Post
Saw this from Vanguard. The referenced research paper is interesting; recommending 20-40% of FI portfolio be foreign, and presents a case for the use of currency hedging. In the context of VG's usual long -term viewpoint, of course. I'm not anxious to jump in any time soon...
+1
After my experience with their VHAAX, I wouldn't go near their international fixed income expertise.
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Old 11-05-2011, 11:19 AM   #4
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I wonder what Bogle thinks I have read his comments about American Business and its overseas exposure. He thinks international investing is built into most large American companies so the Total Market Index has plenty of international exposure in it. Or am I wrong?

However, bonds are a different animal. Or are they?
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Old 11-05-2011, 11:37 PM   #5
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Anyone want to buy a Greek bond?
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Old 11-06-2011, 01:48 AM   #6
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Anyone want to buy a Greek bond?
At the right price absolutely. Right now they are trading around $.30 on the dollar. If the bail out goes through and bondholders get $.50 on dollar that is nice profit. Now obviously there is decent chance that bailout doesn't go through or it isn't enough. Still at $.10 to $.20 on the dollar I'd rather have 10 year Greek bonds than US 10 year bonds with 2% yield. At least with Greek bonds I have chance of coming out ahead after inflation with 10 year treasury, I think the chance of inflation averaging less than 2% over the next 10 years are extremely low.

So while it appears that Greek bonds are a really risky investment. I think the chances of not losing money (after inflation) on them are actually better than US bonds.
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Old 11-06-2011, 04:10 AM   #7
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Here is a Morningstar article

Vanguard Finally Says It Will Launch International-Bond Funds

VG seems to be pretty conservative. Part of the motivation is consumer demand. Consumer demand often chases where they think attractive investments will be.... Consumers preference at any point in time is not always a good indication of a great decision.

But... more than likely, their move represents the response to a trend that cannot be ignored. The US is still a dominant force... but not the only viable country where debt is in demand. Those foreign debt investments can be managed for profit.

I saw an interview with Bill Gross and Mohamed A. El-Erian on Wealthtrack. They have an interesting POV on the matter. Two part segment. Those shows are on Youtube.

WealthTrack's Channel - YouTube
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Old 11-06-2011, 08:45 AM   #8
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Originally Posted by BOBOT View Post
Saw this from Vanguard. The referenced research paper is interesting; recommending 20-40% of FI portfolio be foreign, and presents a case for the use of currency hedging. In the context of VG's usual long -term viewpoint, of course. I'm not anxious to jump in any time soon...
I plan to retire in the UK so a US based UK gilt bond fund would be great as US tax law makes it difficult for US tax payers to invest in foreign mutual funds. An vanguard international bond fund would be ok and I'm looking into buying individual UK gilts.....
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Old 11-06-2011, 09:04 AM   #9
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This offering is not timely and the expense ratios are high for an index fund. There are good options available already by Templeton, Loomis Sayles, PIMCO. It is strange that Vanguard said for years it would not offer int'l bonds only to change its mind at the precise moment the world is realizing that int'l developed country sovereign debt may not be safe after all. This new discovery, that not all triple A rated gov't debt is really triple A, means an index may not be the best way to invest.
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Old 11-06-2011, 09:18 AM   #10
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This offering is not timely and the expense ratios are high for an index fund. There are good options available already by Templeton, Loomis Sayles, PIMCO. It is strange that Vanguard said for years it would not offer int'l bonds only to change its mind at the precise moment the world is realizing that int'l developed country sovereign debt may not be safe after all. This new discovery, that not all triple A rated gov't debt is really triple A, means an index may not be the best way to invest.
Yeah I just saw the fees, I still want that currency hedge though and found that I may as well just use a UK long term saving account as for a 5 year term you can get 5.16%......just like the days of the 5% CD

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Old 11-06-2011, 11:50 AM   #11
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...(snip)...
I saw an interview with Bill Gross and Mohamed A. El-Erian on Wealthtrack. They have an interesting POV on the matter. Two part segment. Those shows are on Youtube.

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Interesting interview, thanks. M* has Gross's PTTRX at 28% foreign bonds as of June.
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Old 11-07-2011, 11:55 AM   #12
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Yeah I just saw the fees, I still want that currency hedge though and found that I may as well just use a UK long term saving account as for a 5 year term you can get 5.16%......just like the days of the 5% CD

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Do your due diligence on these vanguard bond funds because I don't think they will give you that exposure to foreign currencies that you are looking for. These bond funds are hedged against currency fluctuations, so that they maintain their value in USD terms. The developed market fund has currency hedging and the emerging mkts fund is innately hedged since they are buying only USD denominated debt (to be repaid in USDs).
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Old 11-07-2011, 06:39 PM   #13
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This offering is not timely and the expense ratios are high for an index fund. There are good options available already by Templeton, Loomis Sayles, PIMCO. It is strange that Vanguard said for years it would not offer int'l bonds only to change its mind at the precise moment the world is realizing that int'l developed country sovereign debt may not be safe after all. This new discovery, that not all triple A rated gov't debt is really triple A, means an index may not be the best way to invest.
Is the new fund going to be only or mostly sovereign debt? I got the imnprssion it would be mostly non-govt, but didn't investigate further.
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Old 11-07-2011, 07:17 PM   #14
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I listened to both interviews with Bill Gross and Mohammad El***. Looks like getting a decent real return will be almost impossible in the near term. Focus: International/Emerging market; strong balance sheet/substantial cash position;a business with strong fundamentals/business plan. Indexing? Not so much. How hard are you prepared to work at investing?
Also A & AA corporate bonds, duration 5-15 years for 3-5%! Ugh. The problem is structural. What will the politicians be able to agree on to pull us out of this mess? And it sounds like the Fed is no longer a factor. They're at zero %, and out of bullets. It's not a bright outlook by their assessment.
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Old 11-07-2011, 09:37 PM   #15
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Is the new fund going to be only or mostly sovereign debt? I got the imnprssion it would be mostly non-govt, but didn't investigate further.
FT published a chart a few weeks ago (can't find it) that showed most AAA debt was sovereign. In other words, govt's have been generating so much more debt than businesses that a high quality fixed income fund has to invest mostly in sovereign.
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Old 11-08-2011, 04:19 AM   #16
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This offering is not timely and the expense ratios are high for an index fund. There are good options available already by Templeton, Loomis Sayles, PIMCO. It is strange that Vanguard said for years it would not offer int'l bonds only to change its mind at the precise moment the world is realizing that int'l developed country sovereign debt may not be safe after all. This new discovery, that not all triple A rated gov't debt is really triple A, means an index may not be the best way to invest.
Their expense is quite a bit lower than much of the competition. The VG expense ratio on those new funds is a lower if one is in Admiral shares. But there is apparently also a front end load of .25% for the International Bond Fund and .75% for the Emerging Market Bond Fund (which seems to be all government debt). I suspect that VG will lower the expenses if they find they can operate at a lower cost. That seems to be their pattern.... some of those issues are scale oriented and turnover driven.

VG has been offering (and managing) Foreign Bond Mutual Funds to foreign customers through their international division for a quite a while.... just not to US customers! (BTW some of those bond funds are not foreign to the customers in those countries and some do have foreign exposure). It seems they have a presence in Europe and in Australia. Of course the with VG model much of the offering is in the currency of the countries they are offering their services.

You can look at the literature for those foreign offerings and see how they have performed. A quick look at a couple of those foreign bond funds.... guess who is managing these new funds? Take a look.


I think most fund houses learned thier lesson about depending solely on the big rating agencies. Many do their own research. VG Seems to have been doing their own analysis on debt all along. Their claim is that they avoided much of the Subprime problem through their own research inspite of the rating agencies. Because it is an index fund... they do not have to buy everything in the index! They just try to track it. They still seem to pick and choose... not just for quality, but to be efficient.

https://global.vanguard.com/internat...r_05012009.pdf


Since they have experience already in those areas, if these new foreign bond funds are popular with US customers, I suspect there will be more to come. It would not suprise me to see them offering 5 to 7 foreign bond funds to US customers in the next 5 years.

IMO - it was a necessary move. They had a position about foreign bonds in the past. They are adapting to changing landscape.

I suspect this also means that some of their Fund of Funds offerings will be modified in the next few years to include these new fund (e.g., Target date funds, lifestyle funds, etc).

One thing you can count on... those other fund houses that have had that foreign bond market to themselves in the US... They took notice! The fund industry's version of Walmart setup business next door!
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Old 11-11-2011, 08:56 PM   #17
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At the right price absolutely. Right now they are trading around $.30 on the dollar. If the bail out goes through and bondholders get $.50 on dollar that is nice profit. Now obviously there is decent chance that bailout doesn't go through or it isn't enough. Still at $.10 to $.20 on the dollar I'd rather have 10 year Greek bonds than US 10 year bonds with 2% yield. At least with Greek bonds I have chance of coming out ahead after inflation with 10 year treasury, I think the chance of inflation averaging less than 2% over the next 10 years are extremely low.

So while it appears that Greek bonds are a really risky investment. I think the chances of not losing money (after inflation) on them are actually better than US bonds.
Hmm. Interesting.

How would an American buy a Greek bond?
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Old 11-13-2011, 12:13 PM   #18
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I read echos of this discussion of the euro on Seeking Alpha: http://www.nytimes.com/2011/11/13/wo...lines&emc=tha2

also:

The euro-zone crisis | The Economist
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