Advice please on foreign/emerging market bond funds

Sven

I would like to diversify bond allocation outside of US. Several options are in consideration:

1. The new Matthews Asia Strategic Income, MAINX, focuses solely on Asia region. Dividend yield at 2.85% with ER at 1.00% (after reduction)

2. Templeton Global bond or Global Total Return, managed by Micheal Hassenstab. Dividend yield at 4.80% with ER at 1.04% (no load through exchange from existing Franklin Mutual funds). Both funds have 40% invested in Asia not including Japan.

For now I am leaning toward Templeton solely on Hassenstab's long term track record, but I would like to hear from other's wisdom. I have been wrong many times before...

thank you.

catch22

Hi Sven,

Another consideration may be Fido's FNMIX, of which; is our only EM bond fund right now. I don't recall whether you already hold an EM bond fund. It is dollar denominated, with the majority of holdings not being in Asia and has a decent long term return record for this sector. If we were to add more bond funds right now; I would also start digging through the Pimco offerings and their foreign funds.

http://fundresearch.fidelity.com/mutual-funds/composition/315910836

Take care,
Catch

Bitzer

I'm have some shares of Templeton Global Total Return. It's done very well over the past several years (as did its cousin, Templeton Global), but hit a very rough patch in the last half of 2011.

Sven

Reply to @catch22: In the past I had invested in Fido FNMIX until we found Pimco fund.

Currently we are using Pimco Emerging Local bond, PELBX, with Asia exposure less than 20%. Pimco uses derivatives to hedge against duration and certain currencies. 2011 was a tough year for many EM bond funds as investors flight-to-safety back to Treasury. Matthews' offering seems interesting, but the yield is not sufficient (in my opinion) to compensate for the risk compared to other EM bond funds. Am I missing something?

Sven

Yes, I have been following both Templeton Global funds. It appeared that Hassenstab were early in certain countries, Japan and Poland. This year he is bounding back strongly.

scott

I like TGINX (TCW Emerging). As for MAINX, I just think that maybe it's too specific and in terms of EM income, I'd rather have a diversified fund.

MaxBialystock

Let me just mention the very new SFGIX with the former Matthews Fund Manager. If you like his record from over at Matthews, then what's not to like with him at the helm of the new Seafarer fund? (Andrew Foster, together with another fellow I am simply not familiar with.)

MaxBialystock

And SFGIX is diversified geographically, moreso than MAINX.

Sven

Reply to @MaxBialystock: MAINX and SFGIX belong to two different asset classes - one being largely an Asia focused bond fund while the other is a global allocation fund. As much respect I have for Andrew Foster, I don't want to take on another fund without eliminate an existing one.

Sven

Reply to @scott: Thank you. I will check out TGINX.

AndyJ

DBLEX/DLENX is a conservative (maybe the most conservative) EM bond fund; Pimco has a stable of five foreign and global bond funds, and one multisector that goes pretty heavily into foreign (PDIIX); Templeton's got the cef's GIM, global bond, and TEI, EM bonds, which might appeal for ease of access but which of course come with the volatility of cef discounts and premiums.

Also, WisdomTree has three EM bond etf's: one Asia local debt (but like Mainx, lower yield), one geographically diverse local currency, mostly gov't, and one dollar-denominated corporate. (All of those, as I recall, are actively managed, a pretty rare breed in the etf world.) And there are two index etf's, PCY and EMB, that do dollar-denominated gov't debt.

BobC

My suggestion is that you hire a manager who has real experience in this area. We use Templeton TGBAX as a core holding in client accounts and compliment it with Goldman Sachs GIMDX or GSDIX. There may be someone who does a better overall job than Hasenstab right now, but his ability to grasp the minutiae of currencies is darned good. That being said, we like Goldman because of the depth of research and strong knowledge of their team. GIMDX has most of its fund in local currency bonds, so if you believe it is prudent to hedge against a possible decline of the dollar, it might be a good option.

Fidelity New Markets is also a good option, but it is a dollar-based fund. Nothing wrong with that, but investors need to understand how the different funds work.

We have looked at PIMCO, but like their other bond funds, they are really loaded up on derivatives and do not do much local currency bonds, expect for the very short term PLMDX.

While I think Foster is a great manager, keep in mind that his experience is mostly in the stock side of the equation, not bonds. MAPIX, which he used to run, is a fund we use for "chicken" exposure to emerging Asia, not as a fixed-income play.

Remember that all managers will have periods of under-performance. When that occurs, use it as a buying opportunity if you are underweighted. And, just like stock funds, don't be hesitant to capture significant gains as they accumulate.

Sven

Reply to @BobC: Goldman's fund you mentioned is not available for many retail investors without an advisor. Would you please suggest other no-load alternatives?

MaxBialystock

From BobC: "Remember that all managers will have periods of under-performance. When that occurs, use it as a buying opportunity if you are underweighted. And, just like stock funds, don't be hesitant to capture significant gains as they accumulate."

...........Quite. I've simply been "sitting" on my PREMX shares and letting the monthly dividends build.

BobC

TCW, Payden, MFS, Eaton Vance, Dreyfus, and Artio all have local currency bond funds. Dreyfus has the longest history with DDBIX. Artio AEFAX, Payden PYELX, and MFS EMLIX are less than a year old. TCW TGWIX and Eaton Vance EEIIX are less than three years old. It is hard to compare these few funds, since they are dumped together with all EM bond funds and since the dollar has been relatively strong over the last few years - with some exceptional quarters when it has not.

Sven

Reply to @BobC: Thank you.

Investor

I own FSICX. It has an emerging markets component. If you want emerging markets bond fund, I think FNMIX is a good option. After thinking a bit on this subject, I decided against splitting my bond monies into too thinly. FSICX meets my need in many ways.

Sven

Reply to @Investor: FSICX covers several asset classes which is easier to manage. High yield and dollar-based EM bonds are also highly correlated. Local currency EM bonds are less correlated and is also one approach to hedge against USD decline. My goal is find skillful managers who are successful over the entire market cycles. I still have more homework to do after I received many feedback from folks here.