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M* Fund Spy: How Risky Is Risky in World-Bond Funds?

MarkMark
in Fund Discussions
"Global-bond fund managers routinely disclose fund-level credit-quality, sector, region, and country exposure breakdowns on their websites, but it can be extremely difficult to deduce where a strategy is taking its credit risk. It can also be hard to discern how far afield it is from the commonly used Bloomberg Barclays Global Aggregate Bond Index. Earlier this summer we rolled out a new Fixed Income Exposure Analysis, or FIEA, component for Morningstar Direct and Morningstar Office users to help investors make sense of their individual portfolios and thereby make better comparisons across funds. Elements of this will be available in fund reports on Morningstar.com and other products later this summer."

Karin Anderson for Fund Spy

Comments

  • msf
    edited August 2020
    Earlier this summer we rolled out a new Fixed Income Exposure Analysis, or FIEA, component for Morningstar Direct and Morningstar Office users.

    M* continues to service its professional customers, while tossing at most a bone to their Premium subscribers:

    Elements of this will be available in fund reports on Morningstar.com and other products later this summer.

    Nothing interactive, at best some information incorporated into the text of fund writeups.
  • carew388carew388
    This won't be news to many here, but IMHO there seem to be two types of global/world/international bond funds:hedged and unhedged. Hedged funds have a much lower standard deviation than unhedged funds. To me the hedging policy is as important as the credit quality. I usually only invest in hedged funds to avoid the volatility of unhedged funds.
  • Sven
    Good points. Learned from 2008 local currency bonds did not fared well in drawdown. Perhaps there are other investors who have more patience than I.
  • Observant1
    I prefer to hedge currencies for world/international bond funds.
    Since I generally use bonds for ballast, unhedged bond funds are simply too volatile for me.

    On the other hand, I favor unhedged foreign equity funds.
    Hedging has less impact on equity volatility due to the wider dispersion of equity returns.
  • CrashCrash
    I own PRSNX. Global bonds, hedged. Very happy.
    RPSIX is another of mine, a fund of funds. All TRP. Happy with both, though PRSNX is pulling ahead lately, with regard to the monthly dividends.
  • hank
    edited August 2020
    Bonds at current world-wide rates are the nearest thing to poison (IMHO). Than again ... most financial assets appear overpriced. A sign of the times. Global bond funds (which include U.S. issues) and International bond funds (ex-U.S.), like other bond funds, are affected by credit quality, duration, maturity and the fund manager’s expertise at analyzing quality - particularly for “non-rated” bonds. Additionally, these funds also often employ derivatives - not easy for most investors to evaluate in terms of risk.

    Expenses are particularly important to bond funds. As a proportion of return, fees represent a higher % and therefore affect return on investment to a greater degree than for equity funds. Hedged or Unhedged? It’s a significant consideration. Unhedged funds tend to experience wider (also “wilder“) swings in value, but should protect better against a depreciating dollar. Most of these funds hedge in varying degree rather than being 100% hedged / 100% unhedged.

    As your prospectus should state, non-U.S. investments (including bonds) generally are subject to higher expenses and greater risk than U.S. domiciled holdings.
  • CrashCrash
    I'd rather be getting a decent yield, in the neighborhood of 5% or so. I'm settling for a lower yield, and am glad that yields aren't NEGATIVE (yet.) I have a third bond fund which assists in pulling up my yield PTIAX. ...Still, yields are coming DOWN while share prices are rising....I'm still receiving a decent share of the rise in stocks, too. My domestic and international stock funds = 35% of portfolio. Staying conservatively diversified.

    ...But the rules of the game have changed, it's true. We are 100% divorced from fundamentals. I don't even want to think about what it will be like when the world's Central Banks pull the plug on stimulus. In the meantime, the value of our currency will be falling off a cliff.
    Today:
    Canada: $1.33
    Yen: 105.5
    euro: $1.18 (18% lower than the euro.)
    pound sterling: $1.31 (Not long ago, we were at $1.25)
    Filipino peso: 49.09 down from 52, lately.











  • msf
    am glad that yields aren't NEGATIVE (yet.)

    Oh, ye of too much faith. A few days ago I was looking through funds a tad up the risk scale past "near cash", and found a few short term government funds with negative yields (at least negative 30 day SEC yields): GSSDX, FFXSX, FIGIX, BTTTX, TWUSX, and CGBAX.

    See here (for GSSDX) and here (for the others). I've listed from best (-0.05%) to worst (-0.65%) SEC yields.

    As you observed, "the value of our currency will be falling off a cliff", which makes it a good time to buy unhedged foreign securities.
  • CrashCrash
    +1. And I suppose that makes my holding in RPSIX a good thing. It holds about 14% in equities, too, in order to "juice" yearly results just a bit.
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