VG Total International Bond Fund is open

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Offshore
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VG Total International Bond Fund is open

Post by Offshore » Fri May 31, 2013 9:33 am

I noticed, this morning, that Vanguard has opened their Total International Bond Funds (VTIBX,VTABX). Vanguard suggests a starting allocation of 20% of total fixed income assets to international bonds.

What say you? I have no particular questions to ask. I am more interested in seeing where a discussion leads.

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Re: VG Total International Bond Fund is open

Post by OverTheHill » Fri May 31, 2013 9:48 am

I have no plans to invest in international bonds, same for non-domestic equities.

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Re: VG Total International Bond Fund is open

Post by jidina80 » Fri May 31, 2013 9:52 am

I'm looking forward to learning the average duration and country mix when that information becomes available.

Can anyone share its expected correlation to other asset classes?

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Re: VG Total International Bond Fund is open

Post by SpringMan » Fri May 31, 2013 9:53 am

Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Best Wishes, SpringMan

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Re: VG Total International Bond Fund is open

Post by Orion » Fri May 31, 2013 9:56 am

It's nice to have options in international bond funds with low expense ratios, but... opened today. I haven't managed to find a yield, a duration, holdings... Not much to go on so far.

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Re: VG Total International Bond Fund is open

Post by brazil_will » Fri May 31, 2013 10:26 am

SpringMan wrote:Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Vanguard updated the risk level and it is now a 3.

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Re: VG Total International Bond Fund is open

Post by SpringMan » Fri May 31, 2013 10:41 am

brazil_will wrote:
SpringMan wrote:Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Vanguard updated the risk level and it is now a 3.
It is still showing up as 2 on my screen.
Best Wishes, SpringMan

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Re: VG Total International Bond Fund is open

Post by digit8 » Fri May 31, 2013 10:55 am

20% might be a decent long term goal. But I'd max out at not much above 5% right now. Between natural new product shyness, Vanguards tendency to drop costs over time, and the likely (slight, not disastrous!) upcoming dip in bond returns, figure five years before everything shakes out to the point I'd want it taking a significant part in the portfolio.
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Re: VG Total International Bond Fund is open

Post by kenyan » Fri May 31, 2013 11:28 am

SpringMan wrote:
brazil_will wrote:
SpringMan wrote:Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Vanguard updated the risk level and it is now a 3.
It is still showing up as 2 on my screen.
Think he means the Emerging Market Bond fund. A risk rating of 5 never really made sense for that fund.
Retirement investing is a marathon.

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Re: VG Total International Bond Fund is open

Post by TimesAWastin » Fri May 31, 2013 11:59 am

By the time that my IRA reaches the point where I can buy in for 20% of my bond allocation, I'll do so. :-) Might be a few years off though...
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Re: VG Total International Bond Fund is open

Post by SpringMan » Fri May 31, 2013 12:05 pm

kenyan wrote:
SpringMan wrote:
brazil_will wrote:
SpringMan wrote:Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Vanguard updated the risk level and it is now a 3.
It is still showing up as 2 on my screen.
Think he means the Emerging Market Bond fund. A risk rating of 5 never really made sense for that fund.
Indeed, I see Emerging Markets Bond fund is now a risk level 3. Thanks for clarifying.
Best Wishes, SpringMan

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Re: VG Total International Bond Fund is open

Post by rkhusky » Fri May 31, 2013 12:34 pm

jidina80 wrote:I'm looking forward to learning the average duration and country mix when that information becomes available.

Can anyone share its expected correlation to other asset classes?
The fund will attempt to track the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).

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Re: VG Total International Bond Fund is open

Post by G-Money » Fri May 31, 2013 12:47 pm

jidina80 wrote:I'm looking forward to learning the average duration and country mix when that information becomes available.

Can anyone share its expected correlation to other asset classes?
Here are stats re duration and yield from grok87: http://www.bogleheads.org/forum/viewtop ... 0#p1669210
grok87 wrote:
Archie Sinclair wrote:
jidina80 wrote:Yes, but does the Barclays Index exist now, or is that something new being created for the Vanguard fund? If it exists now, where can I find it's duration and yield? I could not find it on Barclays website.
I think the index is created for Vanguard. It's tailored to Vanguard's specific needs/wants: non-US, float adjusted, amount in any one country capped, US dollar hedged.
Correct. It is the Barclays Global Agg Ex-USD Float Adjusted RIC Capped index. As per the subscription only Barclays site here are some of the stats:

Duration: 6.65
yield 1.71%

now these stats are for the non-hedged index. I don't know how the currency hedging would affect things. I think Vanguard has said they think the currency hedging is worth about 10 bps. So you could knock down the yield to about 1.61% I guess.
hope this helps
cheers,
Here is Vanguard's research paper regarding international bonds. http://www.vanguard.com/pdf/icrifi_032012_high.pdf. Figure 7 on page 10 shows the changes in volatility of adding a hedged international bond fund. Notice, however, that the difference in volatility between 0% international bonds and 100% hedged international bonds is a between 0.0 and 0.3. IMO, that's noise.
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Re: VG Total International Bond Fund is open

Post by Kevin M » Fri May 31, 2013 1:06 pm

Thanks for sharing this. I don't even see a price yet.

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Re: VG Total International Bond Fund is open

Post by Phineas J. Whoopee » Fri May 31, 2013 1:19 pm

jidina80 wrote:I'm looking forward to learning the average duration and country mix when that information becomes available.
...
From the Statutory Prospectus, speaking first of average maturity (not exactly what you asked for, but some information nonetheless):
The Fund maintains a dollar-weighted average maturity consistent with that of
the Index, which generally ranges between 5 and 10 years and, as of March 31, 2013,
was 8.2 years.
As of March 31, 2013, the target index for the Fund held a substantial percentage of
its assets in bonds of issuers located in just a handful of countries, as shown in the
following table:
...
Barclays Global Aggregate ex-USD
Float Adjusted RIC Capped Index (USD Hedged)
Japan 22.5%
France 11.6
Germany 11.0
United Kingdom 7.9
Italy 7.9
Canada 5.8
Spain 5.5
Total 72.2%
The Statutory Prospects (don't be fooled and read the Summary one which says nothing) is available from a link here:
https://personal.vanguard.com/us/funds/ ... IntExt=INT

PJW
[Edited to point out the difference between the question on average duration, and the answer regarding average maturity.]
Last edited by Phineas J. Whoopee on Fri May 31, 2013 1:33 pm, edited 1 time in total.

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Re: VG Total International Bond Fund is open

Post by tetractys » Fri May 31, 2013 1:24 pm

There's too much weird or international stuff in TBM for me already, which I avoid, so why go to something worse? -- Tet

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Re: VG Total International Bond Fund is open

Post by Carpe » Fri May 31, 2013 2:28 pm

For anyone interested, outside the US Vanguard aleady provides a fund based on the "Barclays Global Aggregate Float Adjusted Bond Index". This particular fund includes US bonds, and there are various institutional classes, demoniniated in different currencies - including USD and USD-hedged classes. The prospectus and fund facts sheet can be accessed as follows:

https://www.vanguard.co.uk/documents/po ... pectus.pdf
https://www.vanguard.co.uk/documents/po ... l_bond.pdf

As of April 30th, the key metrics of this "Global Bond" fund (and Barclays GA Float Adjusted Index Hedged) are:
- Number of bonds: 9,009 (15,176)
- Effective YTM: 1.51% (1.55%)
- Average Coupon: 3.5% (3.4%)
- Average Maturity: 7.8 years (7.8 years)
- Average Quality: AA- (AA-)
- Average Duration: 5.9 years (5.9 years)

I wonder why they don't just make this available within the US also, as it seems like they have done all the necessary legwork.
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Re: VG Total International Bond Fund is open

Post by nisiprius » Fri May 31, 2013 2:38 pm

SpringMan wrote:
kenyan wrote:
SpringMan wrote:
brazil_will wrote:
SpringMan wrote:Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Vanguard updated the risk level and it is now a 3.
It is still showing up as 2 on my screen.
Think he means the Emerging Market Bond fund. A risk rating of 5 never really made sense for that fund.
Indeed, I see Emerging Markets Bond fund is now a risk level 3. Thanks for clarifying.
Well, that just goes to show that Vanguard reps don't always give you the straight dope, as I specifically asked them (via their normal online account "secure email") whether the five was a goof, and got a reply stating in part:
Vanguard Emerging Markets Government Bond Index Fund Investor Shares is correctly rated for risk potential at a five.
And went on to quote boilerplate from the prospectus.

I thought a five was crazy until someone hit me with a clue-by-four and got me to look back to 1998 instead of just ten years. Now I think a three is crazy, and shame on them.
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Re: VG Total International Bond Fund is open

Post by Mitchell777 » Fri May 31, 2013 5:38 pm

Duration: 6.65
yield 1.71%
I thought the return would be higher than 1.74% for that duration. My wishful thinking. I know it is an estimate so I think I'll wait a little.

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Re: VG Total International Bond Fund is open

Post by Valuethinker » Sat Jun 01, 2013 2:33 am

Mitchell777 wrote:Duration: 6.65
yield 1.71%
I thought the return would be higher than 1.74% for that duration. My wishful thinking. I know it is an estimate so I think I'll wait a little.
Even with recent events in Japan (ie radical monetary loosening) 22% of that fund is paying 1% yield or less. The German 10 year Bund is paying 1.5%.

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Re: VG Total International Bond Fund is open

Post by VictoriaF » Sat Jun 01, 2013 6:45 am

nisiprius wrote:I thought a five was crazy until someone hit me with a clue-by-four and got me to look back to 1998 instead of just ten years. Now I think a three is crazy, and shame on them.
What is a "clue-by-four"? Do you think the Emerging Markets Bond Fund should be rated "four" rather than "five" (before) or "three" (now)? Or is this an idiom I am not familiar with?

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Re: VG Total International Bond Fund is open

Post by VictoriaF » Sat Jun 01, 2013 6:51 am

SpringMan wrote:Thanks for posting. This fund has risk level of only 2, much less risk than their emerging markets bond fund at risk level 5. There is no purchase fee, unlike the .35% purchase fee for emerging markets bond fund. Admiral shares have a .2% ER. I am likely to purchase some.
Before you purchase it, consider that you may be influenced by a behavioral-economics bias of anchoring. The information about the Emerging Markets Bond Fund primed you to a certain level of expectation, which you may have found ridiculous. The new Total International Bond Fund looks so appealing in comparison that you may forget to consider if you need it at all.

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Market impact?

Post by Taylor Larimore » Sat Jun 01, 2013 7:01 am

Bogleheads:

Is anyone concerned about the initial "market impact" when Vanguard begins buying million's (perhaps billions) of dollars of international bonds for the new international bond fund?

http://en.wikipedia.org/wiki/Market_impact

Best wishes.
Taylor
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Re: Market impact?

Post by Barry Barnitz » Sat Jun 01, 2013 8:05 am

Taylor Larimore wrote:Bogleheads:

Is anyone concerned about the initial "market impact" when Vanguard begins buying million's (perhaps billions) of dollars of international bonds for the new international bond fund?

http://en.wikipedia.org/wiki/Market_impact

Best wishes.
Taylor

From the Bank of International Settlements : International debt securities - all issuers:

Total Developed Market debt securities (2012): 18.159 trillion dollars.
Total US debt securities (2012): 2.908 trillion dollars.
Net Developed Market debt securities (2012): 15.251 trillion dollars.

regards,
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Re: VG Total International Bond Fund is open

Post by nisiprius » Sat Jun 01, 2013 8:47 am

VictoriaF wrote:
nisiprius wrote:I thought a five was crazy until someone hit me with a clue-by-four and got me to look back to 1998 instead of just ten years. Now I think a three is crazy, and shame on them.
What is a "clue-by-four"? Do you think the Emerging Markets Bond Fund should be rated "four" rather than "five" (before) or "three" (now)? Or is this an idiom I am not familiar with?

Victoria
1) Portmanteau of "hit me with a clue stick" and "hit me with a two-by-four" (lumber size with a nominal cross-section of 2" x 4"). Evolution through jokes from "don't even have a clue" to "clueless" to various jokes about "he couldn't find a clue if..." My dad always liked "he couldn't empty a boot full of water if the instructions were printed on the heel of the boot."

2) I'm giving up. I expected the fund to be placed at a three because I thought Vanguard was conservative. Then I thought they were right to put it at five because of what other emerging bond funds and Morningstar's category benchmark showed in 1998. Then I thought they were sleazy to revise it to three. Then Barry Barnitz hit me with whatever would be bigger than a clue-by-four, by pointing out actual data posted in the Bogleheads' wiki for the behavior of several EM bond indexes, not the actively managed funds I was looking at, and it doesn't look so bad. Quite possibly a three is reasonable after all.
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Re: VG Total International Bond Fund is open

Post by Barry Barnitz » Sat Jun 01, 2013 1:33 pm

HI:

Notice from prospectuses of the Vanguard balanced fund of funds that will be establishing allocations to the Vanguard Total International Bond Index Fund:
The reallocation from domestic bonds to foreign bonds will occur in three stages. First, each Target Retirement(/LifeStrategy) Fund will redeem in kind—i.e., for securities rather than for cash—20% of its fixed income portfolio and simultaneously contribute the securities to(TIB) in exchange for Transition Shares of TIB.

Transition Shares are a private share class of TIB, created exclusively for the use of Vanguard funds of funds to facilitate the movement of billions of dollars of assets in the most efficient and cost-effective manner. The in-kind redemptions will be implemented by each Target Retirement(/LifeStrategy) Fund by redeeming proportionally from Vanguard Total Bond Market II Index Fund... (and proportionally from the Vanguard inflation Protected Securities Fund for those funds that hold it; any funds holding the Prime Money Market fund will redeem 100% of that holding (sic).

In the second stage of the reallocation, TIB will sell the contributed securities and use the cash proceeds to purchase foreign bonds consistent with its target index, a process known as the “transition.”

Third, when the transition is complete, each Target Retirement(/LifeStrategy) Fund will convert its ownership of TIB from Transition Shares to Investor Shares.
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Re: VG Total International Bond Fund is open

Post by stan1 » Sat Jun 01, 2013 1:44 pm

Barry Barnitz wrote:HI:

Notice from prospectuses of the Vanguard balanced fund of funds that will be establishing allocations to the Vanguard Total International Bond Index Fund:
The reallocation from domestic bonds to foreign bonds will occur in three stages. First, each Target Retirement(/LifeStrategy) Fund will redeem in kind—i.e., for securities rather than for cash—20% of its fixed income portfolio and simultaneously contribute the securities to(TIB) in exchange for Transition Shares of TIB.

Transition Shares are a private share class of TIB, created exclusively for the use of Vanguard funds of funds to facilitate the movement of billions of dollars of assets in the most efficient and cost-effective manner. The in-kind redemptions will be implemented by each Target Retirement(/LifeStrategy) Fund by redeeming proportionally from Vanguard Total Bond Market II Index Fund... (and proportionally from the Vanguard inflation Protected Securities Fund for those funds that hold it; any funds holding the Prime Money Market fund will redeem 100% of that holding (sic).

In the second stage of the reallocation, TIB will sell the contributed securities and use the cash proceeds to purchase foreign bonds consistent with its target index, a process known as the “transition.”

Third, when the transition is complete, each Target Retirement(/LifeStrategy) Fund will convert its ownership of TIB from Transition Shares to Investor Shares.
Well, interesting, so if they can convert from Transition Shares to Investor shares why can they convert from Investor to Admiral shares within a fund-of-funds?

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Re: VG Total International Bond Fund is open

Post by jdb » Sat Jun 01, 2013 7:52 pm

I tend to be an early adopter so will be investing next week in Admiral classes of these two new international bond funds, but not more than a few percentages of total bond allocation at least to begin with. I think the idea of more fixed income diversification is good, and trust Vanguard more than other funds to invest in these classes of assets.

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Re: VG Total International Bond Fund is open

Post by bargainhuntingking » Sun Jun 02, 2013 3:54 pm

I just got my transaction confirmation for Total International Bond Index Admiral Shares. The price was $20.00 on 5/31. Wahoo! I look forward to seeing how this plays out 25 years from now. ;)

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Re: VG Total International Bond Fund is open

Post by nedsaid » Sun Jun 02, 2013 6:01 pm

It is interesting that International Bond Funds are not doing well right now just as Vanguard has opened up this fund.

I own an International Bond fund that is down 7% for the year. Mostly the rise in the US Dollar. It shows the risks of these things.
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Re: VG Total International Bond Fund is open

Post by bayview » Sun Jun 02, 2013 6:14 pm

I had an international bond fund that did really well over a number of years. I dumped it due to the astronomical costs.

So I might wind up investing in this one, but not yet. I like letting other folks be the beta versions testers. :D
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Re: VG Total International Bond Fund is open

Post by Kevin M » Sun Jun 02, 2013 6:29 pm

nedsaid wrote: I own an International Bond fund that is down 7% for the year. Mostly the rise in the US Dollar. It shows the risks of these things.
I believe the Vanguard fund is hedged against currencies, so this particular risk should not be an issue for this fund. Checking ... yep:
The fund employs currency hedging strategies to protect against uncertainty in future exchange rates, so investment returns are expected to reflect the underlying performance of international bonds.
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Re: VG Total International Bond Fund is open

Post by momar » Sun Jun 02, 2013 6:50 pm

I would buy the Emerging Markets bond fund, except for that purchase fee.

I like that it is somewhat risky and that (Valuethinker mentioned this in another thread) it will hold bonds from EMs that aren't in the various stock funds. That seems like enough of a value proposition to get me interested.

I might consider it more of an equity holding than a bond holding if I ever get around to buying some.
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Re: VG Total International Bond Fund is open

Post by jdb » Mon Jun 03, 2013 8:24 am

momar wrote:I would buy the Emerging Markets bond fund, except for that purchase fee.

I like that it is somewhat risky and that (Valuethinker mentioned this in another thread) it will hold bonds from EMs that aren't in the various stock funds. That seems like enough of a value proposition to get me interested.

I might consider it more of an equity holding than a bond holding if I ever get around to buying some.
Good point Momar about the purchase fee for the EM bond fund. Seems difficult to justify an additional fee for a hedged bond fund. I will only purchase the international bond fund for time being.

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Re: VG Total International Bond Fund is open

Post by leod » Mon Jun 03, 2013 10:16 am

does this include Greece bonds or from countries that have talks of defaulting?

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Re: VG Total International Bond Fund is open

Post by jdb » Tue Jun 04, 2013 8:05 am

leod wrote:does this include Greece bonds or from countries that have talks of defaulting?
Hopefully not much, if any. That is why you go with an experienced bond fund manager like Vanguard, to pick good bonds.

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Re: VG Total International Bond Fund is open

Post by dumbmoney » Tue Jun 04, 2013 8:29 am

leod wrote:does this include Greece bonds or from countries that have talks of defaulting?
It's an "investment grade" bond fund, so there is a minimum credit rating. I assume Greek bonds are still "junk" bonds, but maybe things have changed.
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Re: VG Total International Bond Fund is open

Post by ftobin » Tue Jun 04, 2013 9:32 am

jdb wrote:
leod wrote:does this include Greece bonds or from countries that have talks of defaulting?
Hopefully not much, if any.
I hope the bond fund contains bonds from such countries in exactly the same proportions that the market (and hence all other investors, in aggregate) value them.

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Re: VG Total International Bond Fund is open

Post by Valuethinker » Tue Jun 04, 2013 11:13 am

ftobin wrote:
jdb wrote:
leod wrote:does this include Greece bonds or from countries that have talks of defaulting?
Hopefully not much, if any.
I hope the bond fund contains bonds from such countries in exactly the same proportions that the market (and hence all other investors, in aggregate) value them.
It will not hold a country below BBB- rating, AFAIK. Ie sub investment grade.

Greece is still sub investment grade AFAIK.

Note the index is 'capped' -- otherwise Japan would be something like 30% of all bonds-- instead it is around 20%. So countries are not in proportion to their bonds issued, fully.

The fund does exclude US Agency bonds. These bonds, chiefly mortgage-backed, are guaranteed by the US government (Freddie, Fannie, GNMA,FHB, TVA -- I think there's a couple of other issuing authorities) but are not US Treasury bonds. That means the US is conceptually underweighted in the index (but given the prepayment characteristic of US MBS, for good reason).

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Re: VG Total International Bond Fund is open

Post by G-Money » Tue Jun 04, 2013 11:31 am

Valuethinker wrote:The fund does exclude US Agency bonds. These bonds, chiefly mortgage-backed, are guaranteed by the US government (Freddie, Fannie, GNMA,FHB, TVA -- I think there's a couple of other issuing authorities) but are not US Treasury bonds. That means the US is conceptually underweighted in the index (but given the prepayment characteristic of US MBS, for good reason).
Given that the fund tracks the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged and its product summary states:
This fund is designed to provide broad exposure to non-U.S. investment-grade bonds
I'd assume the fund also won't hold US Treasury bonds either. So the US allocation should be 0% (at least in the US variety of this fund). :wink:

https://personal.vanguard.com/us/funds/ ... IntExt=INT
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Re: VG Total International Bond Fund is open

Post by ftobin » Wed Jun 05, 2013 1:42 am

Valuethinker wrote:It will not hold a country below BBB- rating, AFAIK. Ie sub investment grade.

Greece is still sub investment grade AFAIK.

Note the index is 'capped' -- otherwise Japan would be something like 30% of all bonds-- instead it is around 20%. So countries are not in proportion to their bonds issued, fully.
I'm curious as to why investment-grade-only bond indexes are popular, and not simply "total" bond market indexes. Focusing on investment-grade indexes seems akin to just having large-cap indexes.

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Taylor Larimore
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Why investment grade bonds?

Post by Taylor Larimore » Wed Jun 05, 2013 6:09 am

ftobin wrote: I'm curious as to why investment-grade-only bond indexes are popular, and not simply "total" bond market indexes. Focusing on investment-grade indexes seems akin to just having large-cap indexes.
ftobin:

Nearly all investing authorities believe that bonds are primarily to provide safety in a portfolio when stocks crash. This requires investment grade bonds which are the least correlated with stock movements.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

xram
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Re: VG Total International Bond Fund is open

Post by xram » Wed Jun 05, 2013 6:47 am

Where are folks holding the international bond fund?
401k?
IRA?
Taxable?
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Re: VG Total International Bond Fund is open

Post by Taylor Larimore » Wed Jun 05, 2013 7:08 am

xram wrote:Where are folks holding the international bond fund?
401k?
IRA?
Taxable?
xram:

Taxable bonds should seldom be located in taxable accounts where dividends are taxed annually at higher income tax rates.

In my opinion, it makes little difference between holding them in a 401k or an IRA. Dividends (yield) accumulates tax-free in both these tax-advantaged accounts.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: VG Total International Bond Fund is open

Post by jdb » Wed Jun 05, 2013 7:21 am

Taylor Larimore wrote:
xram wrote:Where are folks holding the international bond fund?
401k?
IRA?
Taxable?
xram:

Taxable bonds should seldom be located in taxable accounts where dividends are taxed annually at higher income tax rates.

In my opinion, it makes little difference between holding them in a 401k or an IRA. Dividends (yield) accumulates tax-free in both these tax-advantaged accounts.

Best wishes.
Taylor
Agree with Taylor in theory. But if your non taxable investments already allocated and muni bond allocation in taxable filled up but want more international fixed income then no choice but to put in taxable and bite bullet on taxes, which is what I have done.

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Re: VG Total International Bond Fund is open

Post by Valuethinker » Wed Jun 05, 2013 7:35 am

ftobin wrote:
Valuethinker wrote:It will not hold a country below BBB- rating, AFAIK. Ie sub investment grade.

Greece is still sub investment grade AFAIK.

Note the index is 'capped' -- otherwise Japan would be something like 30% of all bonds-- instead it is around 20%. So countries are not in proportion to their bonds issued, fully.
I'm curious as to why investment-grade-only bond indexes are popular, and not simply "total" bond market indexes. Focusing on investment-grade indexes seems akin to just having large-cap indexes.
A lot of institutional investors (eg insurance companies) and trustee investors cand *only* invest in investment grade bonds. They may hold 'fallen angels' (former IG bonds downgraded) for a certain time and up to a certain percentage, but at issue or secondary market they can only make new purchases of IG bonds.

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Re: VG Total International Bond Fund is open

Post by Valuethinker » Wed Jun 05, 2013 7:36 am

G-Money wrote:
Valuethinker wrote:The fund does exclude US Agency bonds. These bonds, chiefly mortgage-backed, are guaranteed by the US government (Freddie, Fannie, GNMA,FHB, TVA -- I think there's a couple of other issuing authorities) but are not US Treasury bonds. That means the US is conceptually underweighted in the index (but given the prepayment characteristic of US MBS, for good reason).
Given that the fund tracks the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged and its product summary states:
This fund is designed to provide broad exposure to non-U.S. investment-grade bonds
I'd assume the fund also won't hold US Treasury bonds either. So the US allocation should be 0% (at least in the US variety of this fund). :wink:

https://personal.vanguard.com/us/funds/ ... IntExt=INT
Quite right. Sorry.

I was eliding 2 points, ie that the global government bond market indices are distorted by the absence of the US Agency market-- in and of itself, one of the largest bond markets in the world (but with very different investment characteristics because of prepayment risk).

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Re: VG Total International Bond Fund is open

Post by xram » Wed Jun 05, 2013 12:32 pm

jdb wrote:
Taylor Larimore wrote:
xram wrote:Where are folks holding the international bond fund?
401k?
IRA?
Taxable?
xram:

Taxable bonds should seldom be located in taxable accounts where dividends are taxed annually at higher income tax rates.

In my opinion, it makes little difference between holding them in a 401k or an IRA. Dividends (yield) accumulates tax-free in both these tax-advantaged accounts.

Best wishes.
Taylor
Agree with Taylor in theory. But if your non taxable investments already allocated and muni bond allocation in taxable filled up but want more international fixed income then no choice but to put in taxable and bite bullet on taxes, which is what I have done.
This is my situation. I do not have any more "room" in 401k or Roth IRAs right now for Vanguard's International Bond Fund but would like to add it to my portfolio.

Should I just wait until next year when I have another 17.5K room in my 401k and 11K in Roths (me and wife)?

just thinking
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Adding an international bond fund?

Post by Taylor Larimore » Wed Jun 05, 2013 1:02 pm

xram:

Personally, I would not bother with a taxable international bond fund unless I could put it within a tax-advantaged account. Even then, I would only add it to a large portfolio where it would be at least 20% of the bond allocation.

Strive for simplicity -- not complexity.

Best wishes.
Taylor
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Re: VG Total International Bond Fund is open

Post by Kevin M » Wed Jun 05, 2013 1:23 pm

xram wrote: This is my situation. I do not have any more "room" in 401k or Roth IRAs right now for Vanguard's International Bond Fund but would like to add it to my portfolio.

Should I just wait until next year when I have another 17.5K room in my 401k and 11K in Roths (me and wife)?

just thinking
Have you seen the blog post by tfb on absolute vs. relative tax efficiency? Tax Efficiency: Relative or Absolute?

Bottom line: at today's low rates, it could be better to hold stocks in tax-advantaged accounts and fixed income in taxable accounts. Worst case, it simply doesn't make that much difference now.

Low rates are also a reason to favor decent, non-brokered CDs over any bond fund. I am not adding any of the new international bond fund to my portfolio for this reason.

Kevin
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