I’m still not a fan of international bond funds

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nedsaid
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Re: I’m still not a fan of international bond funds

Post by nedsaid »

abuss368 wrote: Mon Jul 30, 2018 10:19 am
nedsaid wrote: Sun Jul 29, 2018 8:39 pm They are, after all, the largest asset class out there. Hard to ignore such a large part of the World financial markets.
Hi nedsaid -

That has essentially been my thought process as well. At the time, I did not know that the international debt markets were the largest asset class. At what point is an asset class to difficult to ignore. I am curious if more Bogleheads will invest in international bonds as we move forward.
What I would say is that Vanguard is giving its investors a gentle nudge. Those invested in the Target Date Retirement Funds or LifeStrategy Funds at Vanguard own International Bonds. Those in the Vanguard Personal Advisory Service are invested in them as well. My understanding is that Total Bond Market Index owns International Bonds denominated in US Dollars. Correct me if I am wrong, but I saw it on the forum.
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Re: I’m still not a fan of international bond funds

Post by vineviz »

SGM wrote: Tue Jul 31, 2018 10:55 am Could it be that Vanguard is offering an international bond fund in a target date fund to avoid potential lawsuits?
No.

The "safe harbor" provision you heard mentioned applies only in specific cases and ONLY to employers. It doesn't affect the manager of the funds one way or the other.

Vanguard includes international bonds in their target date funds because the research shows that doing so increases the diversification of those portfolios.
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Re: I’m still not a fan of international bond funds

Post by Rick Ferri »

2015 wrote: Thu May 17, 2018 1:57 pm
Rick Ferri wrote: Sat Apr 21, 2018 1:57 pm Bobcat2,

You might want to modify or delete your post because nowhere does it show I recommend emerging market bonds.

Also, for the record, I no longer own or manage an investment firm.

Rick Ferri
Rick, totally off topic, but didn't you divest your firm and hit the road for awhile? It's good to see you back!

(for the record, I'm a 3 fund PF devotee so this discussion is irrelevant to me!)
You are correct on both counts, and, yes, I am back. Last week, my wife and I officially ended our Vagabond lifestyle by moving out of the RV and into a real house in Georgetown, Texas. Although it's a small house, it's HUGE compared to living in a 19 foot trail trailer.

Visit RickFerri.com to read the partial story of my divestiture under the "Biography" page, and learn what I'm planning next under the "Services" page.

Rick
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Re: I’m still not a fan of international bond funds

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Rick, good to see that you are back in the game. I guess retirement for you was temporary. Best of luck for your new venture.
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Re: I’m still not a fan of international bond funds

Post by Rick Ferri »

This Vanguard report states the obvious, having more bonds in a portfolio increases diversification. The report further states more diversification is gained with international bonds but only if the currency is hedged. What does this actually look like in a portfolio?

The Vanguard Total Bond Market Index Fund has 8,557 bonds as of July 31. The Vanguard Total International Bond Index has 4,949 as of the same date. Hence, having both in a portfolio equals 13,500 bonds. Now, exactly how much benefit is gained from owning an extra 4,949 bonds is up for debate.

Given that hedging is not free, and that Total International Bond Index is only yielding 1.0% verses 3.3% for the Total Bond Market, investors in this fund are relying on the currency hedge to provided at least 2.3% in excess return.

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Re: I’m still not a fan of international bond funds

Post by abuss368 »

Rick Ferri wrote: Tue Jul 31, 2018 1:29 pm
This Vanguard report states the obvious, having more bonds in a portfolio increases diversification. The report further states more diversification is gained with international bonds but only if the currency is hedged. What does this actually look like in a portfolio?

The Vanguard Total Bond Market Index Fund has 8,557 bonds as of July 31. The Vanguard Total International Bond Index has 4,949 as of the same date. Hence, having both in a portfolio equals 13,500 bonds. Now, exactly how much benefit is gained from owning an extra 4,949 bonds is up for debate.

Given that hedging is not free, and that Total International Bond Index is only yielding 1.0% verses 3.3% for the Total Bond Market, investors in this fund are relying on the currency hedge to provided at least 2.3% in excess return.

Rick Ferri
Hi Rick -

That is interesting. Essentially a retiree who needs cash flow from dividends would be better off with Total Bond and the 3.3% yield compared to a combination of both funds and the lower 1.0% yield of Total International. Jack Bogle has referred to this as income risk.

I am surprised for the additional risk with international that the yield is not higher.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

Rick Ferri wrote: Tue Jul 31, 2018 1:10 pm You are correct on both counts, and, yes, I am back. Last week, my wife and I officially ended our Vagabond lifestyle by moving out of the RV and into a real house in Georgetown, Texas. Although it's a small house, it's HUGE compared to living in a 19 foot trail trailer.

Visit RickFerri.com to read the partial story of my divestiture under the "Biography" page, and learn what I'm planning next under the "Services" page.

Rick
Hi Rick -

Thank you for the update and glad you are active on the forum again! I checked out your website and it is very nicely designed and flows easily.

Looking forward to the Core-4 rollout. Have you simplified your personal portfolios to a Core-4?

Best.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

nedsaid wrote: Tue Jul 31, 2018 11:14 am My understanding is that Total Bond Market Index owns International Bonds denominated in US Dollars. Correct me if I am wrong, but I saw it on the forum.
Hi nedsaid -

That is correct. If you review the fund reports and specifically the assets in each fund, Total Bond index includes a small allocation to international bonds issued in dollars. Total International Bond includes companies from the United States issuing bonds overseas (i.e. Apple, Berkshire, etc).

We truly are a global investment society.
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Re: I’m still not a fan of international bond funds

Post by vineviz »

Rick Ferri wrote: Tue Jul 31, 2018 1:29 pm The Vanguard Total Bond Market Index Fund has 8,557 bonds as of July 31. The Vanguard Total International Bond Index has 4,949 as of the same date. Hence, having both in a portfolio equals 13,500 bonds. Now, exactly how much benefit is gained from owning an extra 4,949 bonds is up for debate.
You and I both know that counting the number of assets in a portfolio is a very 19th century way to measure diversification.
Rick Ferri wrote: Tue Jul 31, 2018 1:29 pmGiven that hedging is not free, and that Total International Bond Index is only yielding 1.0% verses 3.3% for the Total Bond Market, investors in this fund are relying on the currency hedge to provided at least 2.3% in excess return.
If we're going to talk about return instead of diversification then lets look at total return.

Image

International bonds had a smaller drawdown last year than US bonds, and 2018 is a picture-perfect example of what international diversification looks like ( BNDX is up 1.06% while BND is down 1.81%).

And while the SEC yields of the two funds is quite different, the delivered TTM yields is much more similar.

https://www.portfoliovisualizer.com/fun ... F30%2F2018
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Re: I’m still not a fan of international bond funds

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abuss368 wrote: Tue Jul 31, 2018 2:15 pm
nedsaid wrote: Tue Jul 31, 2018 11:14 am My understanding is that Total Bond Market Index owns International Bonds denominated in US Dollars. Correct me if I am wrong, but I saw it on the forum.
Hi nedsaid -

That is correct. If you review the fund reports and specifically the assets in each fund, Total Bond index includes a small allocation to international bonds issued in dollars. Total International Bond includes companies from the United States issuing bonds overseas (i.e. Apple, Berkshire, etc).

We truly are a global investment society.
We don't know what is good for us. We are going to get those International Bonds whether we like them or not. :wink:
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Re: I’m still not a fan of international bond funds

Post by Rick Ferri »

A few things about the above chart:

1) International bond PRICES have outperformed US bond PRICES as international yields fell to negatives territory while US yields did not go that low. Hence the one-time jump in returns to international bonds as depicted in the chart.

2) The US dollar had been stronger over the same period, thus the currency hedged worked.

3) The future will not look like the past.
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Re: I’m still not a fan of international bond funds

Post by typical.investor »

Rick Ferri wrote: Tue Jul 31, 2018 5:45 pm
2) The US dollar had been stronger over the same period, thus the currency hedged worked.
Does USD strength really determine hedge returns though?

I though the hedge yield resulted from the difference in short term rates (and was added to the coupon for overall yield from international bonds). US rates can rise while the USD weakens (say out of concern from rising deficits and credit risk). International bonds would still see nice hedge yield returns in such a scenario and match the higher US yields even thought the dollar is weaker.

So when US yields jump and US bonds suffer PRICE (NAV) loss (at least until they recover per their duration), international bonds will still hold their value and a retiree can use them to fund expenses without selling as much total bond for instance that has suffered a (temporary per it's duration) loss from the rising US rates. This assumes that rates aren't rising everywhere at the same time of course.

Or I might be confused as occasionally happens...

Anyway, I think the point is well made that international bonds are unlikely to see more PRICE benefit from their rates going more negative, but rather will see PRICE loss due to normalizing rates (such as we have been seeing in US bonds recently).
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Re: I’m still not a fan of international bond funds

Post by 2015 »

Rick Ferri wrote: Tue Jul 31, 2018 1:10 pm
2015 wrote: Thu May 17, 2018 1:57 pm
Rick Ferri wrote: Sat Apr 21, 2018 1:57 pm
Rick, totally off topic, but didn't you divest your firm and hit the road for awhile? It's good to see you back!

(for the record, I'm a 3 fund PF devotee so this discussion is irrelevant to me!)
You are correct on both counts, and, yes, I am back. Last week, my wife and I officially ended our Vagabond lifestyle by moving out of the RV and into a real house in Georgetown, Texas. Although it's a small house, it's HUGE compared to living in a 19 foot trail trailer.

Visit RickFerri.com to read the partial story of my divestiture under the "Biography" page, and learn what I'm planning next under the "Services" page.

Rick
Congratulations on the Portfolio Solutions "divestiture" :D being settled in your favor. I'm looking forward to a vagabond lifestyle in my future. It's good to see you back steering individuals toward what is best for them (simplicity).
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

Bogleheads -

In my opinion this has been an excellent post and I have learned much.

Thank you.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

I am curious when Rick will be launching his Core 4 website. Perhaps he will have additional information why he does not favor international bonds compared to Vanguard.
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Re: I’m still not a fan of international bond funds

Post by michaeljc70 »

International bonds have been the star of my portfolio lately. I guess it didn't take much though to get that status.
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Re: I’m still not a fan of international bond funds

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abuss368 wrote: Thu Oct 25, 2018 6:59 pm I am curious when Rick will be launching his Core 4 website. Perhaps he will have additional information why he does not favor international bonds compared to Vanguard.
When I asked he replied it would be up 10/31.
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Re: I’m still not a fan of international bond funds

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The launch date for Core-4.com is October 31. Keep your fingers crossed!

I’ll introduce 6 different Core-4 portfolios, all six ranging in risk from low-risk to aggressive.

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Re: I’m still not a fan of international bond funds

Post by abuss368 »

Rick Ferri wrote: Thu Oct 25, 2018 7:07 pm The launch date for Core-4.com is October 31. Keep your fingers crossed!

I’ll introduce 6 different Core-4 portfolios, all six ranging in risk from low-risk to aggressive.

Rick Ferri
Sounds interesting. Looking forward to it!
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Re: I’m still not a fan of international bond funds

Post by neurosphere »

Rick has a portfolio for everyone, even those who like international bonds! Here's his "Global Markets" portfolio:
Total US Stock Market
Total International Stock
US Investment-grade Bonds
International (hedged) Bonds
Personally, I'm agnostic to international bonds. I think people don't need them, but they probably don't hurt, and I don't care that Vanguard includes them in their Target Retirement funds.

Now, I LOVE Ferri's (original) "Classic" Core Four, which is essentially my personal portfolio, but with a tilt to small value. Which leads me to his "Total Economy" portofolio: 1) Total Global Stock Market (approximately 55% US and 45% non-US) 1) US Small Value Stocks 3) US Real Estate Investment Trusts (REITs) 4) US Investment-grade Bonds. Has REITS and SCV. But still simple due to using a Global stock fund. Brilliant! :)
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

neurosphere wrote: Sun Nov 04, 2018 7:34 pm Rick has a portfolio for everyone, even those who like international bonds! Here's his "Global Markets" portfolio:
Total US Stock Market
Total International Stock
US Investment-grade Bonds
International (hedged) Bonds
Personally, I'm agnostic to international bonds. I think people don't need them, but they probably don't hurt, and I don't care that Vanguard includes them in their Target Retirement funds.

Now, I LOVE Ferri's (original) "Classic" Core Four, which is essentially my personal portfolio, but with a tilt to small value. Which leads me to his "Total Economy" portofolio: 1) Total Global Stock Market (approximately 55% US and 45% non-US) 1) US Small Value Stocks 3) US Real Estate Investment Trusts (REITs) 4) US Investment-grade Bonds. Has REITS and SCV. But still simple due to using a Global stock fund. Brilliant! :)
International Bond appear to be more costly, provide less yield, and include more risk than domestic bonds. However they increase diversification. One of Rick's new Core Four Portfolio's follow the Vanguard Four Fund Portfolio and include International Bonds.
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Re: I’m still not a fan of international bond funds

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abuss368 wrote: Sun Nov 04, 2018 8:03 pm
neurosphere wrote: Sun Nov 04, 2018 7:34 pm Rick has a portfolio for everyone, even those who like international bonds! Here's his "Global Markets" portfolio:
Total US Stock Market
Total International Stock
US Investment-grade Bonds
International (hedged) Bonds
Personally, I'm agnostic to international bonds. I think people don't need them, but they probably don't hurt, and I don't care that Vanguard includes them in their Target Retirement funds.

Now, I LOVE Ferri's (original) "Classic" Core Four, which is essentially my personal portfolio, but with a tilt to small value. Which leads me to his "Total Economy" portofolio: 1) Total Global Stock Market (approximately 55% US and 45% non-US) 1) US Small Value Stocks 3) US Real Estate Investment Trusts (REITs) 4) US Investment-grade Bonds. Has REITS and SCV. But still simple due to using a Global stock fund. Brilliant! :)
International Bond appear to be more costly, provide less yield, and include more risk than domestic bonds. However they increase diversification. One of Rick's new Core Four Portfolio's follow the Vanguard Four Fund Portfolio and include International Bonds.
So what changed between the initial post in April and today that International Bond is part of a recommended portfolio?
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

hale2 wrote: Sun Nov 04, 2018 8:44 pm
abuss368 wrote: Sun Nov 04, 2018 8:03 pm
neurosphere wrote: Sun Nov 04, 2018 7:34 pm Rick has a portfolio for everyone, even those who like international bonds! Here's his "Global Markets" portfolio:
Total US Stock Market
Total International Stock
US Investment-grade Bonds
International (hedged) Bonds
Personally, I'm agnostic to international bonds. I think people don't need them, but they probably don't hurt, and I don't care that Vanguard includes them in their Target Retirement funds.

Now, I LOVE Ferri's (original) "Classic" Core Four, which is essentially my personal portfolio, but with a tilt to small value. Which leads me to his "Total Economy" portofolio: 1) Total Global Stock Market (approximately 55% US and 45% non-US) 1) US Small Value Stocks 3) US Real Estate Investment Trusts (REITs) 4) US Investment-grade Bonds. Has REITS and SCV. But still simple due to using a Global stock fund. Brilliant! :)
International Bond appear to be more costly, provide less yield, and include more risk than domestic bonds. However they increase diversification. One of Rick's new Core Four Portfolio's follow the Vanguard Four Fund Portfolio and include International Bonds.
So what changed between the initial post in April and today that International Bond is part of a recommended portfolio?
I am not sure but that is a good question for Rick. I would suspect it is not so much the philosophy but rather a strategy.
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Re: I’m still not a fan of international bond funds

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abuss368 wrote: Sun Nov 04, 2018 8:03 pm
neurosphere wrote: Sun Nov 04, 2018 7:34 pm Rick has a portfolio for everyone, even those who like international bonds! Here's his "Global Markets" portfolio:
Total US Stock Market
Total International Stock
US Investment-grade Bonds
International (hedged) Bonds
Personally, I'm agnostic to international bonds. I think people don't need them, but they probably don't hurt, and I don't care that Vanguard includes them in their Target Retirement funds.

Now, I LOVE Ferri's (original) "Classic" Core Four, which is essentially my personal portfolio, but with a tilt to small value. Which leads me to his "Total Economy" portofolio: 1) Total Global Stock Market (approximately 55% US and 45% non-US) 1) US Small Value Stocks 3) US Real Estate Investment Trusts (REITs) 4) US Investment-grade Bonds. Has REITS and SCV. But still simple due to using a Global stock fund. Brilliant! :)
International Bond appear to be more costly, provide less yield, and include more risk than domestic bonds. However they increase diversification. One of Rick's new Core Four Portfolio's follow the Vanguard Four Fund Portfolio and include International Bonds.
They increase diversification over credit risk.

They probably don't increase diversification much over duration (interest rate) risk. I imagine the duration of the international bond fund is a bit less than the US Treasury index?

Yield should be very similar because of the mechanics of FX hedging - the difference in yield is almost exactly the cost of forward hedging the currency (but goes in the opposite direction).

So the question is: does an American need to diversify credit risk away from the US government? Is there a situation where the ability of the US to pay its debts comes into question, that does not also affect virtually every other government bond market?

Eurozone there is a reason to diversify. Italy is the world's 4th largest government bond market (I believe) and it is not risk free - a 250 basis point spread over bunds (German) tells you that the market believes that.
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Re: I’m still not a fan of international bond funds

Post by fennewaldaj »

Valuethinker wrote: Mon Nov 05, 2018 3:10 am
So the question is: does an American need to diversify credit risk away from the US government? Is there a situation where the ability of the US to pay its debts comes into question, that does not also affect virtually every other government bond market?
In the immediate future no. By the time I die in 40-60 years? Maybe. You would think you would be able to see a potential default coming when it was actually a realistic possibility.
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Re: I’m still not a fan of international bond funds

Post by Valuethinker »

fennewaldaj wrote: Mon Nov 05, 2018 3:48 am
Valuethinker wrote: Mon Nov 05, 2018 3:10 am
So the question is: does an American need to diversify credit risk away from the US government? Is there a situation where the ability of the US to pay its debts comes into question, that does not also affect virtually every other government bond market?
In the immediate future no. By the time I die in 40-60 years? Maybe. You would think you would be able to see a potential default coming when it was actually a realistic possibility.
There is a price of Credit Default Swap on US govt debt. So the market does (in theory) put a price & probability on it. I am not convinced that's really an estimate of the risk of debt default (in the case of the US Treasury bond).
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Re: I’m still not a fan of international bond funds

Post by hale2 »

abuss368 wrote: Sun Nov 04, 2018 9:39 pm
hale2 wrote: Sun Nov 04, 2018 8:44 pm
abuss368 wrote: Sun Nov 04, 2018 8:03 pm
neurosphere wrote: Sun Nov 04, 2018 7:34 pm Rick has a portfolio for everyone, even those who like international bonds! Here's his "Global Markets" portfolio:
Total US Stock Market
Total International Stock
US Investment-grade Bonds
International (hedged) Bonds
Personally, I'm agnostic to international bonds. I think people don't need them, but they probably don't hurt, and I don't care that Vanguard includes them in their Target Retirement funds.

Now, I LOVE Ferri's (original) "Classic" Core Four, which is essentially my personal portfolio, but with a tilt to small value. Which leads me to his "Total Economy" portofolio: 1) Total Global Stock Market (approximately 55% US and 45% non-US) 1) US Small Value Stocks 3) US Real Estate Investment Trusts (REITs) 4) US Investment-grade Bonds. Has REITS and SCV. But still simple due to using a Global stock fund. Brilliant! :)
International Bond appear to be more costly, provide less yield, and include more risk than domestic bonds. However they increase diversification. One of Rick's new Core Four Portfolio's follow the Vanguard Four Fund Portfolio and include International Bonds.
So what changed between the initial post in April and today that International Bond is part of a recommended portfolio?
I am not sure but that is a good question for Rick. I would suspect it is not so much the philosophy but rather a strategy.
That's possible, but I would think someone wouldn't recommend and investment/product that they don't like. I guess it's mainly to stick with the global theme of that portfolio.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

Curious if anything has changed from a strategy perspective with regards to international bonds.
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Re: I’m still not a fan of international bond funds

Post by 4th and Inches »

I guess I quietly have some in my Vanguard Target Date funds.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

4th and Inches wrote: Tue Apr 02, 2019 10:59 pm I guess I quietly have some in my Vanguard Target Date funds.
And the LifeStrategy funds.
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Re: I’m still not a fan of international bond funds

Post by ankonaman »

I think I'll let the folks at Wellington/Wellesley continue picking my bonds for me.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

ankonaman wrote: Thu Apr 04, 2019 6:59 pm I think I'll let the folks at Wellington/Wellesley continue picking my bonds for me.
I am not sure that those funds include international bonds in their holdings.
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Re: I’m still not a fan of international bond funds

Post by staythecourse »

Anyone else find it interesting there are always threads on not holding x, y, z when they are doing poor? Vice versa why don't we ever see threads of not owning a, b, c when they are doing great?

When this happens the behavioral part of me comes out and questions are you 1. Not into it as you really don't agree or 2. No into it because they have been a dog of an investment? Really hard to be sure which it is WITHOUT going through a time when they x, y, z shoots the lights out and you STILL advocate for not holding them.

Good luck.

p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
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Re: I’m still not a fan of international bond funds

Post by BJJ_GUY »

staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
In a lecture I attended of David Swensen, Yale University CIO, he discussed this exact theory.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: I’m still not a fan of international bond funds

Post by z3r0c00l »

BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
I just skip the terrible debt addicted companies and go straight for international debtor number one. The only difference is, that debtor prints the money.
jmk
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Re: I’m still not a fan of international bond funds

Post by jmk »

1) Looking at returns and correlations, it's pretty clear that you can't compare SEC yield of international bond fund to local bond funds. (Returns have been comparable between the two funds despite the difference in yield.)

2) I use some total international bond for a simple reason: diversification of interest risk between different countries. Other countries have different monetary policies and set different rates than the federal reserve. Both funds contain a lot of national bonds of respective countries. This is especially true over the short term, where I have most of my international diversification.
BJJ_GUY
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Re: I’m still not a fan of international bond funds

Post by BJJ_GUY »

jmk wrote: Wed Apr 24, 2019 9:59 pm 1) Looking at returns and correlations, it's pretty clear that you can't compare SEC yield of international bond fund to local bond funds. (Returns have been comparable between the two funds despite the difference in yield.)

2) I use some total international bond for a simple reason: diversification of interest risk between different countries. Other countries have different monetary policies and set different rates than the federal reserve. Both funds contain a lot of national bonds of respective countries. This is especially true over the short term, where I have most of my international diversification.
Attribution of FX is often more significant than change in price/yield, especially the case when talking local currency EM sovereigns.

Out of curiosity, if you already participate in global markets via equity exposure, does it really make sense to be trying to diversify interest rate exposure? Rates change, generally, as a measure against inflation - and inflationary environments tend to flow through to stock prices (which also reflect currency denomination of the stocks). So, I wonder, are you out-thinking yourself... or do you have a creative/interesting thesis I'm totally missing?
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Re: I’m still not a fan of international bond funds

Post by EZ James »

I am not particularly comfortable with foreign bonds in my Target Income fund but yesterday as I was throwing out a 2006 newspaper I skimmed an article by Paul Orfelea, founder of Kinko's.

His thesis was energy, and mentioned that if and when oil is no longer traded in dollars, you will want to have foreign bonds.

I don't know enough to even have an opinion and trust (or more accurately,hope) that the gurus at Vanguard have a good reason to hold the bonds.
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Re: I’m still not a fan of international bond funds

Post by staythecourse »

BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
The issue is either one is market cap or not. I am not saying you SHOULD be market cap for international bonds, but you can't have it both ways. Folks really don't see how POWERFUL rationalization and intellectualization is when it comes to investing and that includes Mr. Swensen and others. If you want to make a strong argument for x, y, z you will find it. The smarter the person the easier it is.

I don't own international bonds, but then again I don't own any bonds. I have no problem doing my own thing, but don't claim to be market cap at the same time.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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Re: I’m still not a fan of international bond funds

Post by DB2 »

staythecourse wrote: Thu Apr 25, 2019 8:54 am
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
The issue is either one is market cap or not. I am not saying you SHOULD be market cap for international bonds, but you can't have it both ways. Folks really don't see how POWERFUL rationalization and intellectualization is when it comes to investing and that includes Mr. Swensen and others. If you want to make a strong argument for x, y, z you will find it. The smarter the person the easier it is.

I don't own international bonds, but then again I don't own any bonds. I have no problem doing my own thing, but don't claim to be market cap at the same time.

Good luck.
I don't think there is necessarily a contradiction if one is global market cap for equities, but not for bonds. They both serve different purposes.
fortyofforty
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Re: I’m still not a fan of international bond funds

Post by fortyofforty »

DB2 wrote: Thu Apr 25, 2019 10:00 am
staythecourse wrote: Thu Apr 25, 2019 8:54 am
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
The issue is either one is market cap or not. I am not saying you SHOULD be market cap for international bonds, but you can't have it both ways. Folks really don't see how POWERFUL rationalization and intellectualization is when it comes to investing and that includes Mr. Swensen and others. If you want to make a strong argument for x, y, z you will find it. The smarter the person the easier it is.

I don't own international bonds, but then again I don't own any bonds. I have no problem doing my own thing, but don't claim to be market cap at the same time.

Good luck.
I don't think there is necessarily a contradiction if one is global market cap for equities, but not for bonds. They both serve different purposes.
Actually, there is a big contradiction. Market cap is market cap. Outguessing the market is outguessing the market. It is hard to criticize those who hold below-global market cap weight in equities, or even zero international equities, when you hold no international bonds. At least, it's hard to do so without sounding hypocritical. Everyone must find her own path, and what is "right" for one is not "right" for all.
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Re: I’m still not a fan of international bond funds

Post by HawkeyePierce »

fortyofforty wrote: Thu Apr 25, 2019 5:33 pm
DB2 wrote: Thu Apr 25, 2019 10:00 am
staythecourse wrote: Thu Apr 25, 2019 8:54 am
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
The issue is either one is market cap or not. I am not saying you SHOULD be market cap for international bonds, but you can't have it both ways. Folks really don't see how POWERFUL rationalization and intellectualization is when it comes to investing and that includes Mr. Swensen and others. If you want to make a strong argument for x, y, z you will find it. The smarter the person the easier it is.

I don't own international bonds, but then again I don't own any bonds. I have no problem doing my own thing, but don't claim to be market cap at the same time.

Good luck.
I don't think there is necessarily a contradiction if one is global market cap for equities, but not for bonds. They both serve different purposes.
Actually, there is a big contradiction. Market cap is market cap. Outguessing the market is outguessing the market. It is hard to criticize those who hold below-global market cap weight in equities, or even zero international equities, when you hold no international bonds. At least, it's hard to do so without sounding hypocritical. Everyone must find her own path, and what is "right" for one is not "right" for all.
I think the question becomes "which market?" Vanguard's total bond fund doesn't contain junk bonds. Their total US stock market fund doesn't contain penny stocks.

Saying that one should hold securities in their proportion to total world market cap still assumes we're all talking about the same total market.
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Re: I’m still not a fan of international bond funds

Post by fortyofforty »

HawkeyePierce wrote: Thu Apr 25, 2019 5:39 pm
fortyofforty wrote: Thu Apr 25, 2019 5:33 pm
DB2 wrote: Thu Apr 25, 2019 10:00 am
staythecourse wrote: Thu Apr 25, 2019 8:54 am
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm

market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
The issue is either one is market cap or not. I am not saying you SHOULD be market cap for international bonds, but you can't have it both ways. Folks really don't see how POWERFUL rationalization and intellectualization is when it comes to investing and that includes Mr. Swensen and others. If you want to make a strong argument for x, y, z you will find it. The smarter the person the easier it is.

I don't own international bonds, but then again I don't own any bonds. I have no problem doing my own thing, but don't claim to be market cap at the same time.

Good luck.
I don't think there is necessarily a contradiction if one is global market cap for equities, but not for bonds. They both serve different purposes.
Actually, there is a big contradiction. Market cap is market cap. Outguessing the market is outguessing the market. It is hard to criticize those who hold below-global market cap weight in equities, or even zero international equities, when you hold no international bonds. At least, it's hard to do so without sounding hypocritical. Everyone must find her own path, and what is "right" for one is not "right" for all.
I think the question becomes "which market?" Vanguard's total bond fund doesn't contain junk bonds. Their total US stock market fund doesn't contain penny stocks.

Saying that one should hold securities in their proportion to total world market cap still assumes we're all talking about the same total market.
I haven't seen anyone here claim "one should hold securities in their proportion to total world market cap". In fact, I see people saying people should not claim to hold market cap when they make excuses for not holding market cap. I still say that one should hold securities one wishes to hold--whether it be equities or bonds--and the rest of us should be far less judgmental. This notion that there is one "right" and everything else must be explained holds no water.
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Re: I’m still not a fan of international bond funds

Post by bgf »

abuss368 wrote: Wed Apr 24, 2019 9:27 pm
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
In a lecture I attended of David Swensen, Yale University CIO, he discussed this exact theory.
that is so well put. i haven't been able to put in a better or more succinct fashion what has always been my intuitive understanding of why market cap strategy just doesn't apply to bonds like equities.

it also ties in with the crazies who argue that you can't "truly" be a passive investor unless you invest in every tradable asset by market cap - equities, bonds, commodities, jewelry, art, etc etc.
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DB2
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Re: I’m still not a fan of international bond funds

Post by DB2 »

fortyofforty wrote: Thu Apr 25, 2019 5:33 pm
DB2 wrote: Thu Apr 25, 2019 10:00 am
staythecourse wrote: Thu Apr 25, 2019 8:54 am
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
The issue is either one is market cap or not. I am not saying you SHOULD be market cap for international bonds, but you can't have it both ways. Folks really don't see how POWERFUL rationalization and intellectualization is when it comes to investing and that includes Mr. Swensen and others. If you want to make a strong argument for x, y, z you will find it. The smarter the person the easier it is.

I don't own international bonds, but then again I don't own any bonds. I have no problem doing my own thing, but don't claim to be market cap at the same time.

Good luck.
I don't think there is necessarily a contradiction if one is global market cap for equities, but not for bonds. They both serve different purposes.
Actually, there is a big contradiction. Market cap is market cap. Outguessing the market is outguessing the market. It is hard to criticize those who hold below-global market cap weight in equities, or even zero international equities, when you hold no international bonds. At least, it's hard to do so without sounding hypocritical. Everyone must find her own path, and what is "right" for one is not "right" for all.
One could want to hold international company stock but not want to hold international government bonds. Two different things. It's no different than one wanting to own U.S. equity, but refusing U.S. treasuries or corporate bonds for various reasons. No contradiction there either. Furthermore, other things can substitute a "bond" purpose where the money would not even be in a traditional U.S. or international bond (hard assets, money markets, etc.) . I agree, there is no one "right way" for all with investing. I don't view it as a religion and there are many ways to skin a cat as history has shown. A lot of it comes down to individual preferences and behaviors in particular. I think behavior and emotions cause most of the problems for investors which I've been guilty of before. Finding an investing manner which allows one to stay steady and sleep at night is more important than global market cap vs 100% U.S., etc.
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Re: I’m still not a fan of international bond funds

Post by xxd091 »

Relevant?
As a U.K. Boglehead I have my Bond Portfolio as A Vanguard International Index Bond Fund (Hedged to the pound)
This gives me access to US Bonds -approximately 50% of Fund
Performance has averaged 5% pa over the last 10 years
This has proved a very satisfactory “anchor to windward” for me
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abuss368
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

bgf wrote: Thu Apr 25, 2019 5:52 pm
abuss368 wrote: Wed Apr 24, 2019 9:27 pm
BJJ_GUY wrote: Wed Apr 24, 2019 9:13 pm
staythecourse wrote: Wed Apr 24, 2019 8:37 pm
p.s. Either way it is everyone's choice, but one can NOT say they are a market cap guy if they omit 20% or so of the money invested in the world. I got that rough number from Mr. Ferri's own excellent book "AAAA". If I remember it was a great pie graph in the first page or so.
market cap referring to the global universe of public equity shares, representing ownership. I think a solid argument can be made that passive participation in economic growth via stocks is different, even fundamentally quite opposite from the idea that you should LEND a pro rata amount to companies who happen to borrow the most.

Think how broken the idea is: Company ABC is a terrible company, loses money each year, and won't be able to service their debt unless they borrow more. So, they issue $350mm in high yield unsecured paper in order to service existing debt plus the new debt... And now a retail investor should own more of terrible company ABC bonds? How does that make sense?
In a lecture I attended of David Swensen, Yale University CIO, he discussed this exact theory.
that is so well put. i haven't been able to put in a better or more succinct fashion what has always been my intuitive understanding of why market cap strategy just doesn't apply to bonds like equities.

it also ties in with the crazies who argue that you can't "truly" be a passive investor unless you invest in every tradable asset by market cap - equities, bonds, commodities, jewelry, art, etc etc.
That was my initial impression when listening to David Swensen's lecture. Never thought about bond funds like that but it made a lot of sense. That is the index holds the most weight in the most indebted country or entity.

I did write up a summary of that lecture and posted on the forum if you are interested.
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Re: I’m still not a fan of international bond funds

Post by abuss368 »

Bogleheads -

One point that appears to have changed over the years as we have become a more globalized society and thus investment world is that Total Bond Index will hold bonds issued in U.S. dollars from international companies, and Total International Bond Index will hold bonds issued buy U.S. companies overseas (i.e. Apple, Berkshire, etc.).

I believe international bonds are the largest asset class.
John C. Bogle: “Simplicity is the master key to financial success."
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nedsaid
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Re: I’m still not a fan of international bond funds

Post by nedsaid »

abuss368 wrote: Thu Apr 25, 2019 8:21 pm Bogleheads -

One point that appears to have changed over the years as we have become a more globalized society and thus investment world is that Total Bond Index will hold bonds issued in U.S. dollars from international companies, and Total International Bond Index will hold bonds issued buy U.S. companies overseas (i.e. Apple, Berkshire, etc.).

I believe international bonds are the largest asset class.
For whatever it is worth, I recently made a small purchase of IAGG, International Aggregate Bond ETF, adding to a position I already held. I will likely put more of my bonds into International over time. Hard to ignore the world's largest asset class. That said, this is an entirely optional asset class, I believe the diversification benefits are minor.
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