Useful to hold foreign bond fund?

[soupcxan]

With the dollars continued decline, is it worthwhile to hold 5% of a foreign bond fund to help balance things out? Can the fund help add some low/negative correllation with US equities? I imagine it would be more volatile than a US bond fund but I am not so concerned with that...just looking for new asset classes that don't move in lockstep with US stocks/bonds. I really don't know much about how a foreign bond fund works, did a search but didn't find much info. Would appreciate some comments.

 

[Skylark]

I was talking to our local pension plan rep, and I said that I thought foreign equities might be good, due to the falling dollar. He said that the falling dollar was good for US export businesses and that it would be better to invest in the US with a falling dollar.

Not sure how this applies to foreign bonds and I'm not much of an expert anyway.

 

[cute fuzzy bunny]

I hold 5% of my total assets in foreign bonds. Not necessary, but its a good 'extra asset class' once you get down to thinking about precious metals and commodities...

 

[haha]

I hold 5% of my total assets in foreign bonds.  Not necessary, but its a good 'extra asset class' once you get down to thinking about precious metals and commodities...

TH, I am looking for an intermediate term, non-currency hedged foreign bond fund with reasonable costs. Could you mention what you use, and any others that you may have looked into while you were shopping?

Thanks, Mikey

 

[brewer12345]

If you can't find a suitable fund, I bet a CD from Everbank would probably work nicely.

 

[cute fuzzy bunny]

AIBDX. American world bond fund.

I hold it in my wifes 403b, where the costs are a little lower than the 1% retail cost. Performance and yield are decent. High grade intermediate...over 80% of the holdings are AAA.

Pimco also has a number of decent global bond offerings.

 

[haha]

AIBDX.  American world bond fund.

ThanksTH, and Brewer.

Mikey

 

[soupcxan]

AIBDX.  American world bond fund.

Is this the sort of thing I need to hold in a tax-free/deferred account? Or is it ok to keep it taxable?

 

[ak4195]

Hi soups,i have 2.the first PSAFX ive had since since '02.if im not mistaken i believe they hold a % in bullion,modest yield,and a hefty mngt fee.The second is GIM,which has performed nicely, divvy was about 5%,decent fee,and as a closed end fund has periods of discount/prem.currently if im not mistaken the discount has evaporated.Also payout is monthly which i really like.If your patient with GIM (which could be months) there will be another time of discount to asset.Im a big fan of a handfull of closed end funds,they all have monthly payouts,but most if not all are leveredged which carries a risk---ak

 

[cute fuzzy bunny]

Mine are in a tax-free account (my wifes 403b). I dont see any reason off the top of my head to not hold them in a taxable account. There will be some tax implications, but you'll get a nice form from the fund company with all the #'s you need to plug into your tax returns.

Yields tend to be pretty good, I think the one I mentioned is yielding around 7%. Pretty decent for AAA rated bonds.

 

[ats5g]

skylark,

He said that the falling dollar was good for US export businesses and that it would be better to invest in the US with a falling dollar.

I would think this depends on a couple of things. Does the US company that exports products enter into contracts that would hedge its currency risk. If so, perhaps the falling dollar wouldn't help its bottom line since it more or less already sold its products at a specified price. Also, does this US export Company use any imports, which could become more expensive if the dollar fell. So, the currency change could be a wash.

How about a real world example, from 1/2003 to 3/2004, the MSCI EAFE returned only 20% in local currency (like Euros), compared to the S&P 500 return of 24% in US local currency ($$). But the EAFE returned 35% when converted back into dollars. An extra 15% because of the falling dollar.

I think I'd check out American Century's Int'l bond fund (BEGBX) and T. Rowe Price's (RPIBX). Personally, I prefer to get my currency exposure where I can get it the cheapest - in my int'l equity funds.

- Alec

 

[ESRBob]

Soup,
I keep 12% of our Portfolio in foreign bonds, split among FNMIX, DFGFX, PFORX, RPIBX, BEGBX. The DFA funds have US and Foreign Bonds in them, the others are all foreign, I believe. They are medium term which seems to be the way these things make sense. None have performed particularly well lately, but the asset class over time proves out pretty well. (no really good long data series, but reasonable evidence that they offer some diversification.
ESRBob

 

[soupcxan]

Any thoughts on why BEGBX has a much higher yield and appears much more volatile than PFORX? Are they investing in higher risk bonsd? Right now I am only looking to get into one foreign bond fund...how would you (or anyone) recommend choosing between FNMIX and BEGBX (PFBDX/PFORX has a $5k minimum, would prefer to put $3k in to start)?

Soup,
I keep 12% of our Portfolio in foreign bonds, split among FNMIX, DFGFX, PFORX, RPIBX, BEGBX.  The DFA funds have US and Foreign Bonds in them, the others are all foreign, I believe.  They are medium term which seems to be the way these things make sense.  None have performed particularly well lately, but the asset class over time proves out pretty well.  (no really good long data series, but reasonable evidence that they offer some diversification.
ESRBob

 

[ESRBob]

Soup,
the volatility in BEGBX does seem a bit odd; especially considering that the bonds are pretty unexceptionable european govt and/or big company bonds. And at fees of .8% + it looks like maybe it's time to prune. (It is a small holding in my portfolio that my DFA guy suggested I toss in a few years back). The big positions for me are in DFGFX (2-year int'l bonds including US - low yield and hedged for dollar holders -- dumb during this decline in the dollar, I know, but one day presumably it will pay off), and PFORX (medium term, less US holdings, unhedged, and better performing in recent years than DFGFX). I also have had nice growth from the riskier FNMIX -- that one is different in that it is developing country debt, so it gives you diversification that way.

Hope this helps. I chose this asset class based on models of its Modern Portfolio Benefits (non-correlation with US Bonds and Equities) and less because I loved the yields etc. themselves. THe class has done well the last few years, but I have no assurance it will do much over the next few years. The point of my diversification strategy, though, is to pick reasonable asset classes that are non or less-correlated with one another, and then not to try to second-guess which asset class will do well in any given year. So far, it seems to be working.

ESRBob

 

[soupcxan]

Thanks for your helpful replies - looks like I will start off with BEGBX and consider FNMIX (the fact that they are heavy in south american bonds concerns me- for some reason, "creditworthiness" and "latin america" don't exactly go together in my book). But it may be worthwhile to add FNMIX down the road.

 

[Whakamole]

This time Latin American bonds will do well! I guarantee!

(Every time LA bonds get hot, they crash. Always.)

I was looking into them a while ago, but found an article on all the debt the EM were issuing, and looking at the recent runup - maybe not right now.

 

[GTM]

TH, I am looking for an intermediate term, non-currency hedged foreign bond fund with reasonable costs. Could you mention what you use, and any others that you may have looked into while you were shopping?

Thanks, Mikey

Pimco has a foreign bond fund. One is hedged vs USD the other unhedged.


PFOAX Foreign Bond (U.S. Dollar-Hedged) $10.60 -$0.01 -0.09% 4.06% 5.33% 4.36% 6.53%

PFUAX Foreign Bond (Unhedged) $10.79 +$0.06 0.56%