FYI: An allocation to global bond markets gives investors exposure to a greater number of
securities, markets, and economic and inflation environments than they would have with
a portfolio composed purely of local market fixed income. In theory, this diversification
can help reduce a portfolio’s volatility without necessarily decreasing its total return.
We tested the empirical reality across five markets: the United States, Canada, the
United Kingdom, the euro area, and Australia. In each market, reality confirms theory—
but with a critical qualifier: The key to realizing the diversification potential of global
bonds is to hedge the currency exposure back to the investor’s local currency.
Although the benefits of global bond diversification are clear, the optimal strategic
allocation depends on investor-specific factors such as the desire to mitigate risk, the
cost of implementation, and liability management objectives. We explore how these
factors influence the size of an investment in hedged global bonds
Regards,
Ted
https://advisors.vanguard.com/iwe/pdf/ISGGLBD.pdf?cbdForceDomain=false
