International Bonds

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trasmuss
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International Bonds

Post by trasmuss » Wed Jun 14, 2017 3:59 am

I use Total Bond for all of the bond portfolio. I have avoided Total International Bond because of the higher expense, lower credit quality, lower yield, and higher duration.

In reviewing the bond portfolio of Wellesley Income, Core Bond, and Intermediate Term Investment Grade funds I noticed they have many foreign bonds in them. I respect Wellesley (although I don't currently own it). What do the managers see that I have missed? Should I be taking a relook at foreign bonds? Are foreign bonds an asset category where active investing makes sense?

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oldcomputerguy
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Re: International Bonds

Post by oldcomputerguy » Wed Jun 14, 2017 5:25 am

Foreign bonds are a very large asset class, so if one believed in diversifying across as many asset classes as possible, then one might consider allocating to them. I don't because in my AA the purpose of bonds is to reduce risk, and foreign bonds are reported to be riskier than domestic bonds.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

RadAudit
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Re: International Bonds

Post by RadAudit » Wed Jun 14, 2017 6:39 am

There's a chance that there's an international bond out there somewhere in which it would make sense to invest. The trick is to find it. So, I'd say that active investing would make sense in that case. I'm not that good to be able to find it.
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azanon
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Re: International Bonds

Post by azanon » Wed Jun 14, 2017 7:35 am

trasmuss wrote:I use Total Bond for all of the bond portfolio. I have avoided Total International Bond because of the higher expense, lower credit quality, lower yield, and higher duration.

In reviewing the bond portfolio of Wellesley Income, Core Bond, and Intermediate Term Investment Grade funds I noticed they have many foreign bonds in them. I respect Wellesley (although I don't currently own it). What do the managers see that I have missed? Should I be taking a relook at foreign bonds? Are foreign bonds an asset category where active investing makes sense?
Vanguard, the company, believes in including International Bonds in a portfolio. Reference any of their Life Strategy funds, and at least one paper they've written on it. International Bonds are the largest global asset class, so to exclude them you actually need a good reason, not the other way around.

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jhfenton
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Re: International Bonds

Post by jhfenton » Wed Jun 14, 2017 7:36 am

trasmuss wrote:I use Total Bond for all of the bond portfolio. I have avoided Total International Bond because of the higher expense, lower credit quality, lower yield, and higher duration.

In reviewing the bond portfolio of Wellesley Income, Core Bond, and Intermediate Term Investment Grade funds I noticed they have many foreign bonds in them. I respect Wellesley (although I don't currently own it). What do the managers see that I have missed? Should I be taking a relook at foreign bonds? Are foreign bonds an asset category where active investing makes sense?
On a case by case basis, I don't find it surprising that an active manager might see value in specific non-US bonds. There are many overseas corporate and sovereign bonds with attractive risk-adjusted yields. The problem for Vanguard's market-cap weighted Total International Bond Index is that the largest sovereign borrowers (Japan, Switzerland, and most of the EU) have very low or negative bond yields. (I would love to see Vanguard offer an investment grade active international bond fund.)

trasmuss
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Re: International Bonds

Post by trasmuss » Wed Jun 14, 2017 7:43 am

Jhfenton has a good point. It is surprising that Vanguard doesn't have an actively managed international bond fund. Their fund managers are familiar with them since they seem to invest in them in their actively managed balanced and bond funds. Perhaps that is one advantage of a fund such as Intermediate Term Investment Grade Bond fund at least teamed with Total Bond compared to Total Bond alone.

azanon
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Re: International Bonds

Post by azanon » Wed Jun 14, 2017 7:48 am

I don't see the point in just focusing on those actives. They're including them in their passives too, as already stated. Vanguard's latest paper on global fixed income: https://personal.vanguard.com/pdf/icrif ... 2_high.pdf

Those active funds that you listed are never going to go completely in or out of an asset class. If they include foreign bonds now, you can likely bet that they always will.

not4me
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Re: International Bonds

Post by not4me » Wed Jun 14, 2017 4:02 pm

OP, going back to your original points, you lay out some specific reasons why you avoided one specific fund. For example, presumably the duration of Total International Bond did not meet your need. I understand how that could be the case. I'm not following why that would relate to another investor (fund manager, individual, etc) needing/wanting something along those lines. That doesn't mean they saw something you didn't, but rather they had different needs than yours. Relooking at foreign bonds wouldn't change your need.

Said another way, I'm not clear on whether you have a problem in search of a solution, or think you may have a 'solution' (ie adding more foreign bond exposure to your portfolio) in search of a problem.

Let me be clear -- I think international bonds play a useful role, but that doesn't mean they should be included by default just because they exist

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