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For Bonds, Add Safety by Venturing Abroad

edited April 9 in Other Investing
https://www.nytimes.com/2021/04/08/business/bonds-safety-international-risk.html

Incognito
https://www.nytimes.com/2021/04/08/business/bonds-safety-international-risk.html

For Bonds, Add Safety by Venturing Abroad
Investors often neglect to add international bond funds to their investments. That failure can increase overall risk and raise the chance of missing savings goals.


Making your bond-fund portfolio less risky requires doing something that can feel like living dangerously: investing abroad.

If you’re like most people, you may have put too much of your money in bond funds invested in your home market and so failed to spread your bets around.***



TDF from Vanguard could be good vehicles to use due to diverse Bonds incorporated from overseas

Comments

  • Ideal mix of foreign bond funds for diversification ? I hold only a smidgeon of PRSNX
  • PRSNX. Bonds in my portfolio = 51% of total. PRSNX = 21.55% of total portfolio. It is below the zero-line so far in 2021 by just a fraction. RELIABLE. Owned it for several years, now. Other bond funds in portfolio are RPSIX, at 22.46% of total. And PTIAX at 7.25% of total. PRWCX and BRUFX hold bonds, too. I have so far, regretted putting money into those three funds not for a moment.
  • Additional currency, political, unenforceable, sanctions, inflation, coup, etc risk? Why do it, for a few extra pennies? Have my money invested in some places I can't pick out on a map? Help fund the CCP? Some place in africa? Brazil, argentina don't seem to be so stable...

    Foreign bonds, no thanks, not for me

    Good luck and good health to all,

    Baseball fan
  • edited April 15
    @Baseball_Fan This is not an endorsement, but:
    "Never have missed a payment." The same line used by TIAA in their ads.

    https://www.israelbonds.com/Home.aspx

    This is not a rebuttal, don't want to start an argument.;) But as a serious bondholder, with more than half of my stuff now in bonds, in retirement, I expect better than the current returns offered by the US Treasury or Ginnie Maes or Freddie Macs and the like. (Although my bond funds include some of that stuff in their mix. My bond "Picture" is truly global.)

    I've looked at (very stable) Canada gov't bonds, too. Well, at least FEDERAL bonds. And "investing" in that stuff at the current rates is a contradiction in terms. Through banks, the gov't offers a "tax-free" account, too. But the interest rate offered is less than 1%. (As of 2018.) Well, "no, thanks" I said to the friendly bank employee.

    ...On the other hand, you simply, and very clearly, prefer the security of the domestically-branded animal. :)
  • No worries @Crash, always respect your commentary and input. I just state my thought processes, for what it is worth, some comments worth more than others...ha!

    Best,

    Baseball Fan
  • edited April 15
    Hi Sirs crash/baseball fan (Or any MFOers)
    What is your largest bond funds or bonds etf holdings

    Looking to add something for mama portfolio but extremely skeptical/worried because inflation issues and risks interest rates increasing

    Thankyou/kind regards
  • @JohnN
    Largest: RPSIX. 22.4% of portfolio.
    2nd largest: PRSNX. 21.5% of portfolio.
    3rd: PTIAX. 7.25% of portfolio.

    I'd recommend PTIAX ahead of the others.
    RPSIX holds a slice of equities, to "juice" the profit just a bit. Right now, the yield on it is below 3%. But you might make up the difference with cap. gains at the end of the year. RPSIX holds some TRP bond funds that are just plain sub-par. RPSIX is a fund-of-funds.

    PTIAX yield is not far from 4%, actually. (3.87.) And as for PRSNX: it's over 3%, which no one should complain about, these days.

    My only complaint with PTIAX is that they are slow to vest shares after you buy them. I once asked a Supervisor on the phone: "Is that because you don't have enough people hired to do the job of recording these items in a timely manner?" ..... After I asked the question, he went silent. Which told me a LOT. But the money they make for me is a good thing.



  • i own two bond funds OSTRX and WCPNX - im thinking of taking all the money out of OSTRX and adding it to WCPNX - but i wont make my decision til the end of the year. any comments on these funds would be very much appreciated. im not the brightest bulb on the tree when it comes to investing. i have made a lot of mistakes over the years.
  • @johnN,

    Not sure if the class would agree that these are bond funds per se but as best as I can answer your question, in order of largest holding to less of:

    PMEFX (Penn Mutual AM 1847 Income) - some would argue more of a balanced income fund

    I-Bonds - let's see what inflation rate portion is come May 1st...I'm thinking this could pay out over 2.5%, no state taxes, indexed to inflation, US Govt has printing press and nuclear aresenal and reserve currency so likely amongst safest investment avail.

    FPFIX - FPA Flexible fixed income

    Good Luck to you and all,

    Baseball Fan

  • edited April 16
    Thank you

    Mama largest holdings Fidelity 2015 lsbrx jnk and many private individual bonds like Macy's kolhs and Ford

    Also couple private munis and American bonds previously

    Kind regards
  • @CRASH AND @BASEBALL FAN -My question is specifically for diversification
    of funds outside of the US .Currently full positions of US Bond funds and Muni's,
    and wanting to put some cash to work .Per the NYT article -I am interested in the foreign bond funds to perform as ballast and better than cash at this point .
  • newgirl said:

    @CRASH AND @BASEBALL FAN -My question is specifically for diversification
    of funds outside of the US .Currently full positions of US Bond funds and Muni's,
    and wanting to put some cash to work .Per the NYT article -I am interested in the foreign bond funds to perform as ballast and better than cash at this point .

    The article mention a good option ETF=BNDX
  • Yes... sirs. Thx


    Forgot mentioned BND and FBND are good long term bonds etf for diversified portfolio
  • msf
    edited April 16
    While I like adding diversification, and my own portfolio is closer to Vanguard's target date fund's 30% foreign (per NYTimes article) than to 0%, it's not clear that one benefits substantially from this diversification.

    I ran a PorfolioVisualizer comparison of a 47.3/52.7 mix of BNDX and BND (this is the current composition of BNDW - Vanguard Global Bond ETF) with BND, with MWTRX (mentioned in the article) and a baseline of IUSB (US total bond market including a smattering of junk bonds).

    The analysis spans just over six years. The blend does a bit better than US IG only - marginally higher returns with marginally lower volatility; correspondingly, somewhat better Sharpe & Sortino ratios. But it is nearly identical to the MetWest core plus fund (down to the same 8% correlation with the US equity market).

    The US bond market ETF does a bit better on return with a volatility closer to the blend and core plus funds than the more volatile US IG bond market. Though it correlates a bit more closely (15% coefficient of correlation) with the US equity market. That's still low correlation; some of the other bond funds correlate more closely with the equity market.

    The only conclusion I draw from these numbers is that adding something to a US IG portfolio helps. But it isn't clear that foreign bonds help any more or less than a smattering of junk bonds.
  • Selective foreign exposure in a broader fund is another option. That's a game Pimco plays well.
  • edited April 17
    Re: “Add Safety by Venturing Abroad”

    Title’s a bit misleading. Try and find a prospectus for any foreign or global bond fund that doesn’t mention the increased risks of owning foreign bonds.

    I’ve always allocated a small chunk to foreign bonds (5-10% of portfolio), mainly because I don’t trust the Fed and politicians to protect the buying power of the USD. Nice to have some foreign bonds just in case of a dollar rout. I’d hazard a guess that my foreign bond exposure over several decades has produced a somewhat better return than the domestic side has. But too many variables to pin down the advantage.

    One variable is that more often than not your foreign bond fund is (fully or partially) hedged back to the U.S. dollar to reduce the volatility introduced by exchange rates. Another variable is the credit quality of the bonds owned. And a third is duration. Fees can be very high as well on foreign bond funds. A big variable is ability of manager to get the valuation / macro picture right and shift funds from country to country. TRP, IMHO, hasn’t been particularly successful at that over the years.

    One fund I’ve owned before that doesn’t hedge back to the dollar is PRELX. But I haven’t been too impressed since it came out. Have been tempted to pick some up recently because it’s down a bit this year and probably due for some kind of rebound. However, a counter argument is that the EM bond market usually suffers when U.S. equity markets correct. So, it might be better to wait longer until the current U.S. stock euphoria wears thin.

    An alternative to foreign bonds would be to invest directly in foreign currencies. Gets rid of interest rate risk. PRPFX does this to some degree and therefore benefits on days when the dollar is weak. Personally, about 10% of my portfolio is in DODLX. To be clear - this is a global bond fund, and often holds around 50% in domestic bonds, along with the international. The fund also dabbles a bit (5-10%) in the EM bond sector - adding incremental return without going off the reservation. With any bond fund, you want low fees, as fees consume a larger share of potential gains with bond funds. D&C does a decent job limiting expenses on all their funds.
  • Thank You @Hank and @MSF - The article infers that it is also a prudent time to look abroad. I have less than 1% of my bond portfolio in foreign bonds, so it really piqued my interest.
  • "Bonds come in a variety as rich — and sometimes baffling — as the screw-and-fastener aisle at Home Depot."- that is the truth !
    what does US IG mean ?
  • US IG bonds refer to United States investment grade bonds, which have credit quality rating of AAA to BB; typical issued by corporation or publicly traded companies.

    Junk bonds, also known as high yield bonds, are rated at C and below. Beware that junk bonds tend to have more positive correlation to equity than say treasury.
  • ducrow said:

    i own two bond funds OSTRX and WCPNX - im thinking of taking all the money out of OSTRX and adding it to WCPNX - but i wont make my decision til the end of the year. any comments on these funds would be very much appreciated. im not the brightest bulb on the tree when it comes to investing. i have made a lot of mistakes over the years.

    I like WCPNX and own it. Very consistent for a core bond fund, and up this year as well. What's not to like?
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