"New International Bond Fund Shows Promise"

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"New International Bond Fund Shows Promise"

Postby Taylor Larimore » Wed Feb 13, 2013 10:52 am

Bogleheads:

Boglehead adviser, Allan Roth, has written this informative CBS MoneyWatch article, about Vanguard's soon-to-be available, foreign bond fund.

http://www.cbsnews.com/8301-505123_162- ... s-promise/

Best wishes.
Taylor
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Re: "New International Bond Fund Shows Promise"

Postby JMacDonald » Wed Feb 13, 2013 12:20 pm

Hi Taylor,
Thanks for the link. Allen Roth adds another point of view about this fund. I am still on the fence if I want it.
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Re: "New International Bond Fund Shows Promise"

Postby InvestorNewb » Wed Feb 13, 2013 12:22 pm

I wonder how it will compare to BND...
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Re: "New International Bond Fund Shows Promise"

Postby allsop » Wed Feb 13, 2013 1:23 pm

I'm curious about the level of withholding taxes, though.
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Re: "New International Bond Fund Shows Promise"

Postby JamesSFO » Wed Feb 13, 2013 1:42 pm

InvestorNewb wrote:I wonder how it will compare to BND...


:?: :confused

BND is just a share class of the Vanguard Total Bond Market Fund https://personal.vanguard.com/us/funds/snapshot?FundId=0928&FundIntExt=INT. A US bond fund.

The difference is that this bond fund will track an international bond index.
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Re: "New International Bond Fund Shows Promise"

Postby kenyan » Wed Feb 13, 2013 1:56 pm

Good to see an estimate of the hedging costs. My annual IPS review is in July, so I'll definitely take a close look at whether or not to include this. Excess cost, comparing Investor Shares only (including hedging) are 6-11 basis points over domestic TBM and Int-Term Index. Is the additional diversification worth it? Admiral Shares cost spreads are larger, but I can't purchase those in my employer account.
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Re: "New International Bond Fund Shows Promise"

Postby tc101 » Wed Feb 13, 2013 2:03 pm

Kenneth Volpert, Vanguard head of the taxable bond group, confirmed that Vanguard would have hedging costs to buy forward contracts in currencies and must continually buy them to stay in a hedged position. He estimated those costs between 0.05 and 0.10 percent annually. That would put the total annual costs of the fund between 0.25 and 0.30 percent. That's still far below any other international bond fund.


By the time you add in the hedging cost, the expenses are not much lower than the international bond ETFs - BWZ, IGOV and ISHG - which all have an expense ratio of .35%.

The choice comes down to whether or not you want currency hedging. I want the exposure to foreigh currency risk/reward because it is one more diversifier.
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Re: "New International Bond Fund Shows Promise"

Postby kenyan » Wed Feb 13, 2013 4:25 pm

tc101 wrote: I want the exposure to foreigh currency risk/reward because it is one more diversifier.


I believe the argument is that currency risk is an uncompensated risk - you are not provided any expected reward for your risk (well, perhaps the 5 basis points you are not paying for hedging contracts). It may provide some additional diversification, though. Whether or not that diversification can be better achieved using international equities is another matter.
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Re: "New International Bond Fund Shows Promise"

Postby Jay69 » Wed Feb 13, 2013 5:10 pm

Has Larry made a comment about this fund yet? I keep looking for his name to pop up on one of these threads.
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Re: "New International Bond Fund Shows Promise"

Postby tc101 » Thu Feb 14, 2013 1:17 am

I believe the argument is that currency risk is an uncompensated risk - you are not provided any expected reward for your risk


The risk is that the foreign currencies will go down in relation to the dollar. The reward is if the foreign currencies go up in relation to the dollar. Don't those balance each other out? Or am I missing something?
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Re: "New International Bond Fund Shows Promise"

Postby abuss368 » Thu Feb 14, 2013 1:27 am

Taylor Larimore wrote:Bogleheads:

Boglehead adviser, Allan Roth, has written this informative CBS MoneyWatch article, about Vanguard's soon-to-be available, foreign bond fund.

http://www.cbsnews.com/8301-505123_162- ... s-promise/

Best wishes.
Taylor


Hi Taylor,

Are you considering investing in this new bond fund?

I would be very interested in Mr. Bogle's thoughts on this new fund.

Best.
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Re: "New International Bond Fund Shows Promise"

Postby Taylor Larimore » Thu Feb 14, 2013 9:06 am

Hi Taylor,

Are you considering investing in this new bond fund?

I would be very interested in Mr. Bogle's thoughts on this new fund.

Abuss:

I have not made up my mind about incorporating the new international bond fund into our portfolio. I see no reason to hurry with the decision.

Mr. Bogle likes to say: "Don't do something; just stand there."

Best wishes.
Taylor
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Re: "New International Bond Fund Shows Promise"

Postby Akiva » Thu Feb 14, 2013 12:20 pm

tc101 wrote:
Kenneth Volpert, Vanguard head of the taxable bond group, confirmed that Vanguard would have hedging costs to buy forward contracts in currencies and must continually buy them to stay in a hedged position. He estimated those costs between 0.05 and 0.10 percent annually. That would put the total annual costs of the fund between 0.25 and 0.30 percent. That's still far below any other international bond fund.


By the time you add in the hedging cost, the expenses are not much lower than the international bond ETFs - BWZ, IGOV and ISHG - which all have an expense ratio of .35%.

The choice comes down to whether or not you want currency hedging. I want the exposure to foreigh currency risk/reward because it is one more diversifier.


The hedging is purely symmetric. If there's inflation (the dollar goes down, other currencies up), then you want unhedged. If there's deflation (dollar up, other currencies down), then you want hedged. Typically people expect their international stock portfolio to counteract their domestic currency losing value. So having a bond portfolio do this as well is a bit duplicative and adds volatility with no additional expected return. I think that the vast majority of people are better off with the hedged option then the unhedged one.
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Re: "New International Bond Fund Shows Promise"

Postby momar » Thu Feb 14, 2013 12:29 pm

tc101 wrote:
I believe the argument is that currency risk is an uncompensated risk - you are not provided any expected reward for your risk


The risk is that the foreign currencies will go down in relation to the dollar. The reward is if the foreign currencies go up in relation to the dollar. Don't those balance each other out? Or am I missing something?

What does that have to do with whether it is compensated?

Its like betting on coin flips.
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Re: "New International Bond Fund Shows Promise"

Postby tc101 » Thu Feb 14, 2013 12:40 pm

What does that have to do with whether it is compensated?
Its like betting on coin flips.


Maybe I am not clear on what exactly it means for risk to be compensated. I thought the possibiliy of a gain due to dollar up, other currencies down was a type of compensation, but maybe not.
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Re: "New International Bond Fund Shows Promise"

Postby Akiva » Thu Feb 14, 2013 12:56 pm

tc101 wrote:
What does that have to do with whether it is compensated?
Its like betting on coin flips.


Maybe I am not clear on what exactly it means for risk to be compensated. I thought the possibiliy of a gain due to dollar up, other currencies down was a type of compensation, but maybe not.


It isn't compensation because it is exactly offset by the possibility of loss if the opposite occurs.
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Re: "New International Bond Fund Shows Promise"

Postby Mikejenny » Thu Feb 14, 2013 6:42 pm

Jay69 wrote:Has Larry made a comment about this fund yet? I keep looking for his name to pop up on one of these threads.

I haven't seen anything by Larry yet but Rick posted something pretty neutral about it a few days ago
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Re: "New International Bond Fund Shows Promise"

Postby Archie Sinclair » Sat Feb 23, 2013 12:14 am

Akiva wrote:
tc101 wrote:
What does that have to do with whether it is compensated?
Its like betting on coin flips.


Maybe I am not clear on what exactly it means for risk to be compensated. I thought the possibiliy of a gain due to dollar up, other currencies down was a type of compensation, but maybe not.


It isn't compensation because it is exactly offset by the possibility of loss if the opposite occurs.


Exactly, if you don't think the likelihood of gain exceeds the likelihood of loss, it's just simple gambling. Like betting on red or black at a roulette table, or betting heads or tails.
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