How many of you have some developed international and EM indexed bond funds in your portfolio?

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ChinchillaWhiplash
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How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by ChinchillaWhiplash » Sat Apr 14, 2018 8:54 am

Curious if anybody is splitting up their bond portion of portfolio with these. If you are, how much is in your portfolio and what is your reasoning behind your decision?

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unclescrooge
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by unclescrooge » Sat Apr 14, 2018 9:47 am

One forth of my bond exposure is EM bonds, via a closed end fund that I bought at a double digit discount.

For one, I like buying things at a discount. The yield is 8%, and I believe the yield will fall in the future as these economies develop.

Regarding DM bonds, most of them yield nothing. With the US raising rates, most of them will probably follow. So you're buying a zero yielding asset in a riding rate environment... No thanks.

dbr
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by dbr » Sat Apr 14, 2018 9:55 am

The forum no longer supports surveys, but if you want survey information you have to gather both yes's and no's from a representative sample. So you can put me down as a no.

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zaboomafoozarg
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by zaboomafoozarg » Sat Apr 14, 2018 10:03 am

25% of my bonds are in Vanguard Total International Bond Index Fund Admiral Shares (VTABX).

ChinchillaWhiplash
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by ChinchillaWhiplash » Sat Apr 14, 2018 10:57 am

dbr wrote:
Sat Apr 14, 2018 9:55 am
The forum no longer supports surveys, but if you want survey information you have to gather both yes's and no's from a representative sample. So you can put me down as a no.
Not really a survey as I didn't ask if you don't invest in these sectors, but thanks for the reply :beer

GAAP
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by GAAP » Sat Apr 14, 2018 11:04 am

zaboomafoozarg wrote:
Sat Apr 14, 2018 10:03 am
25% of my bonds are in Vanguard Total International Bond Index Fund Admiral Shares (VTABX).
25% of my holdings are in the ETF equivalent -- BNDX.

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kramer
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by kramer » Sat Apr 14, 2018 11:40 am

I would very much like to own some bonds in these segments but I am only interested in unhedged local currency bonds. And I have found the expense ratios too high (not willing to pay 0.35% for a developed international bond fund) and also the idea of an index in these sectors tends to buy most of the bonds from the countries with the most debt.

I really wish there was a solution as I am very interested in more foreign currency exposure and somewhat interested in exposure to different interest rate levels and cycles.

Always passive
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by Always passive » Sat Apr 14, 2018 11:58 am

My stock portfolio has been for the past years 40/40/20 between US, DW ex US, and EM. This has been based on my believe in valuations, more specifically PE10 to judge long term performance.
Only time will tell if I am correct.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by sambb » Sat Apr 14, 2018 12:08 pm

I invest via target and Ld fubds

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jhfenton
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by jhfenton » Sat Apr 14, 2018 12:10 pm

I have about 5% of our portfolio in VEGBX (Vanguard Emerging Markets Bond Admiral Shares). It's the newish active EM bond fund. I don't consider it part of our equity allocation or our fixed income allocation. It is in its own category, mentally divided about 50/50 between equity and bond. (Though it behaves far more like a bond fund on a day-to-day basis, it is presumably subject to the occasional EM debt crisis that we've seen in the past.)

I do not have any developed international bonds.

ChinchillaWhiplash
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by ChinchillaWhiplash » Sat Apr 14, 2018 5:45 pm

I am considering doing a 50% total US bond index, 25% DM, and 25% EM or 50/50 US/EM. Looking at Morningstar risk/return BND has risk of "above average" and return of "average". BNDX and VWOB have the same returns with risk of "Below average". Found it surprising that EM was rated less risk than US bonds. Didn't know if the higher ER would cancel out any gains or risk? ER BND = 0.05, VWOB = 0.32, and BNDX = 0.11. Would it be better to invest in the less risk for the same return average? :confused.

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jhfenton
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by jhfenton » Sat Apr 14, 2018 6:50 pm

ChinchillaWhiplash wrote:
Sat Apr 14, 2018 5:45 pm
I am considering doing a 50% total US bond index, 25% DM, and 25% EM or 50/50 US/EM. Looking at Morningstar risk/return BND has risk of "above average" and return of "average". BNDX and VWOB have the same returns with risk of "Below average". Found it surprising that EM was rated less risk than US bonds. Didn't know if the higher ER would cancel out any gains or risk? ER BND = 0.05, VWOB = 0.32, and BNDX = 0.11. Would it be better to invest in the less risk for the same return average? :confused.
Those fund risk ratings are historical volatility rankings relative to the category the fund belongs to.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by Dale_G » Sat Apr 14, 2018 9:43 pm

12% of my bonds are in emerging markets via VWOB, VEGBX and PCY in roughly equal portions. The Vanguard link to the VEGBX reports and prospectus are goofy at the moment, but I don't think VEGBX is an index fund. I don't hold any International Developed Market bonds.

Dale
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pascalwager
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by pascalwager » Sat Apr 14, 2018 10:50 pm

I don't presently have any int'l bonds, and don't understand why anyone would want to hold (low quality) EM bonds. I would like to hold hedged int'l bonds for diversification, but the VG fund duration (7.9 years) is too long for me. I'm not concerned about the low yield as I mainly hold bonds for safety.

I want to take risks in stocks, not bonds, and I don't understand why an investor-oriented company like Vanguard would even provide and promote an EM bond fund.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by GAAP » Sun Apr 15, 2018 10:09 am

pascalwager wrote:
Sat Apr 14, 2018 10:50 pm
I want to take risks in stocks, not bonds,
I'm guessing you're defining "risk" as volatility?

I use BNDX (International Bonds -- USD Hedged) to protect against -- and hopefully profit from -- different risks.

In a global market that has some very large players, monies will flow between fixed income and equity, and across national borders, quite easily. I would like to get a piece of that action.

Economies fail for long periods, empires fall, etc. I want to diversify my exposure to get some protection against those events also.

CSRI has this to say: "Extrapolating from such a successful market can lead to “success” bias. Investors can gain a misleading view of equity returns elsewhere, or of future equity returns for the USA itself. That is why this Yearbook focuses on global investment returns, rather than just US returns." I don't see how that could be true for stocks and yet not apply to bonds.

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siamond
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by siamond » Sun Apr 15, 2018 10:19 am

ChinchillaWhiplash wrote:
Sat Apr 14, 2018 8:54 am
Curious if anybody is splitting up their bond portion of portfolio with these. If you are, how much is in your portfolio and what is your reasoning behind your decision?
OP, you might be interested by this small research project on the Bogleheads blog:
https://finpage.blog/2017/09/11/portfol ... ing-bonds/

One of my tentative conclusions (which I'd be happy to follow myself if I could) was:
If Vanguard or BlackRock would offer a low cost Global Bond fund, it would probably be reasonable to go for it, but splitting US Bonds to create room for International Bonds doesn’t seem terribly useful.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by Valuethinker » Sun Apr 15, 2018 11:15 am

siamond wrote:
Sun Apr 15, 2018 10:19 am
ChinchillaWhiplash wrote:
Sat Apr 14, 2018 8:54 am
Curious if anybody is splitting up their bond portion of portfolio with these. If you are, how much is in your portfolio and what is your reasoning behind your decision?
OP, you might be interested by this small research project on the Bogleheads blog:
https://finpage.blog/2017/09/11/portfol ... ing-bonds/

One of my tentative conclusions (which I'd be happy to follow myself if I could) was:
If Vanguard or BlackRock would offer a low cost Global Bond fund, it would probably be reasonable to go for it, but splitting US Bonds to create room for International Bonds doesn’t seem terribly useful.
Just a query.

VG USA now offers such a fund?

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siamond
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by siamond » Sun Apr 15, 2018 12:42 pm

Valuethinker wrote:
Sun Apr 15, 2018 11:15 am
VG USA now offers such a fund?
I don't believe so. Or am I missing something? I was speaking of a GLOBAL fund (all countries including the US), not an International ex-US fund. Something equivalent to Vanguard Total World Stock (VTWSX) for bonds?

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by jocdoc » Sun Apr 15, 2018 8:50 pm

I have 8% Vanguard EM government Bond index fund. I plan to increase my EM dollar denominated bond to 10-12% of my bonds for diversification purposes. It has a higher yield than the vanguard international bond index. Research affiliates postulates a 2.4% real return for EM non local bonds.I will probably have to add some of the other Vanguard EM bond fund to get that real return. RA postulate the US Agg bond index will return 1.4% real I have no developed non US bonds. I will add the Vanguard International Bond index fund when the yields are much higher. Previously a skeptic regarding EM bonds I was convinced by the article last year on the Financial Page: https://finpage.blog/2017/09/11/portfol ... ing-bonds/
as well as the recommendations by RA on their asset allocation site.

jc

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by comeinvest » Mon Apr 16, 2018 1:11 am

jocdoc wrote:
Sun Apr 15, 2018 8:50 pm
I have 8% Vanguard EM government Bond index fund. I plan to increase my EM dollar denominated bond to 10-12% of my bonds for diversification purposes. It has a higher yield than the vanguard international bond index. Research affiliates postulates a 2.4% real return for EM non local bonds.I will probably have to add some of the other Vanguard EM bond fund to get that real return. RA postulate the US Agg bond index will return 1.4% real I have no developed non US bonds. I will add the Vanguard International Bond index fund when the yields are much higher. Previously a skeptic regarding EM bonds I was convinced by the article last year on the Financial Page: https://finpage.blog/2017/09/11/portfol ... ing-bonds/
as well as the recommendations by RA on their asset allocation site.

jc
What is your rationale for non-local EM bonds vs. local EM bonds?
Also, is there any withholding tax for EM bonds?

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by Valuethinker » Mon Apr 16, 2018 2:32 am

siamond wrote:
Sun Apr 15, 2018 12:42 pm
Valuethinker wrote:
Sun Apr 15, 2018 11:15 am
VG USA now offers such a fund?
I don't believe so. Or am I missing something? I was speaking of a GLOBAL fund (all countries including the US), not an International ex-US fund. Something equivalent to Vanguard Total World Stock (VTWSX) for bonds?
Right. My mistake.

Our global bond funds (UK/ Europe) of course do more or less what you say. I am not aware of one (passive) that includes EM bonds.

My own experience of the 1990s and the Mexico Crash, then the Asia Crash & Russian default, was that EM bonds really are a separate asset class with their own unique risks. The macroeconomic risks mean there is a correlation across the whole asset class, and a correlation with equity markets, that ordinary investment grade government bond markets don't have.

Of course the highest profile of late has been Greece, which was counted as a developed market country at one point.

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siamond
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by siamond » Mon Apr 16, 2018 10:13 am

Valuethinker wrote:
Mon Apr 16, 2018 2:32 am
Our global bond funds (UK/ Europe) of course do more or less what you say. I am not aware of one (passive) that includes EM bonds.

My own experience of the 1990s and the Mexico Crash, then the Asia Crash & Russian default, was that EM bonds really are a separate asset class with their own unique risks. The macroeconomic risks mean there is a correlation across the whole asset class, and a correlation with equity markets, that ordinary investment grade government bond markets don't have.
Oh yes, for sure, EM bonds have its own dynamics, very distinct from bonds from developed countries. This being said, if you look at Vanguard Total International Bond (VTIBX), the weight of EM bonds is less than 4%, hence its influence would be pretty much negligible for the global bond fund of my dreams... Anyhoo, this is all theoretical for US investors at this point, unless you assemble a global bond portfolio by yourself, mixing up US and Int'l funds.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by MnD » Mon Apr 16, 2018 6:08 pm

Yes (except for the indexed part), through Dodge and Cox Global Bond.
It's an active "go anywhere" bond fund with any selective hedging being up to the management committee.
It seems to take a barbell approach with a mix of high and lower credit rated bonds (including EM bonds), less government bonds and with an overall higher yield and shorter duration than bond index funds.
30 day SEC yield 3.79%
Effective duration 3.3 years

Indexing for bonds puts you most heavily invested in "biggest debtor" countries and in places where for internal cultural reasons, even nominal debt pays nothing or even worse. Broad bond index funds do not outperform in their categories, unlike stock index funds.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by pascalwager » Sun Jun 17, 2018 8:47 pm

GAAP wrote:
Sun Apr 15, 2018 10:09 am
pascalwager wrote:
Sat Apr 14, 2018 10:50 pm
I want to take risks in stocks, not bonds,
I'm guessing you're defining "risk" as volatility?

I use BNDX (International Bonds -- USD Hedged) to protect against -- and hopefully profit from -- different risks.

In a global market that has some very large players, monies will flow between fixed income and equity, and across national borders, quite easily. I would like to get a piece of that action.

Economies fail for long periods, empires fall, etc. I want to diversify my exposure to get some protection against those events also.

CSRI has this to say: "Extrapolating from such a successful market can lead to “success” bias. Investors can gain a misleading view of equity returns elsewhere, or of future equity returns for the USA itself. That is why this Yearbook focuses on global investment returns, rather than just US returns." I don't see how that could be true for stocks and yet not apply to bonds.
BNDX duration is too long for me. I have two short-term DFA funds with majority of foreign bonds.

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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by nisiprius » Mon Jun 18, 2018 10:57 am

I invest in bond funds for safety. (By which I mean, yes, volatility reduction).

I do not hold any currency-hedged international bond funds (such as Vanguard's Total International Bond Fund) because the case for them providing any meaningful diversification, e.g. by Vanguard in Global fixed income: Considerations for U.S. investors is so weak that it doesn't tempt me. I see them as safe, sane, and pointless.

I do not hold any unhedged international bond funds because to me they are basically foreign currency investments with interest icing. Foreign currency is high on the list of things I would never consider investing in. It seems as if every couple of years there is a news story about some bank losing a few billion dollars because a currency trade gone wrong.

I do not hold any emerging markets bond funds because of 1998.
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I do not want to see a 40% drop in my "bonds are for safety" holding. A sane person who was risk-tolerant could decide that the reward was worth the risk. If you are perfectly familiar with 1998 and it doesn't bother you, fine--but even so, in my opinion, it is just not a "bond-like" asset class.
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Re: How many of you have some developed international and EM indexed bond funds in your portfolio?

Post by pop77 » Mon Jun 18, 2018 11:15 am

I own 5% of my TOTAL portfolio in Emerging Market Bonds, specifically FNMIX that nisi posted. I consider this to be part of the 'equity' allocation not bond allocation so volatility does not bother me. Instead of holding 10% in EM stocks, I have split into 5% EM Stocks and 5% EM Bonds. When you compare VWO with FNMIX, FNMIX has offered better risk adjusted returns.

I am still debating whether I should convert this allocation into Small Cap Value after listening to Merriman. My only defense for holding EM Bonds instead of in other equity (Small Cap Value for example) is that it is less correlated with US Market and offers better risk adjusted returns.

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