These exchange-traded funds own bonds from abroad, mostly those issued by governments.
There is a case to be made for diversifying your bond portfolio globally, albeit not as strong a case as for diversifying a stock portfolio. Be prepared for meager returns.
The largest fund in this category, Vanguard Total International (BNDX), tracks an index of mostly high-grade credits with mostly low yields. Its two largest positions are a French government bond with a 1% coupon and a Japanese government bond with a 0.1% coupon.
With BNDX you aren’t diversifying across currencies, since this fund hedges away currency risk. You aren’t avoiding the risk of rising interest rates, since its duration is 8 years (equivalent in risk, roughly, to a ten-year Treasury bond). At least the fund is cheap, earning it a spot on the Best ETFs Honor Roll.
[Looking for an exchange-traded fund? See the full coverage of Forbes Best ETFs.]
The other big international bond fund, iShares JP Morgan U.S. Dollar Emerging Markets Bond (EMB), has half its assets in junk countries. The resulting 5% yield looks attractive until you ponder the possibility that Egypt or Argentina might chose not to repay the money it borrowed.
For more excitement, consider SPDR Bloomberg Barclays Emerging Markets Local Bond (EBND), which adds to the risk of sketchy borrowers like Brazil and Indonesia the risk of sketchy currencies.
Best ETFs: International Bonds
|Ticker||Exchange-Traded Fund||Holding Cost1||Liquidity Score2||Assets ($bil)|
|BNDX||Vanguard Total International Bond*||$181||A||11.6|
|DIAL||Columbia Diversified Fixed Inc Allc||477||C||0.1|
|VWOB||Vanguard Emerging Mkts Govt Bd||526||B||1.0|
|IGOV||iShares International Treasury Bond||576||B||1.1|
|ISHG||iShares 1-3 Year International TrsBd||583||C||0.1|
|BWZ||SPDR Blmbg Barclays ST Intrn TrsBd||633||D||0.3|
|EMB||iShares JP Morgan USD Em Mkts Bd||641||A+||11.3|
|EBND||SPDR Blmbg Barclays Em Mkts Lcl Bd||648||B||0.8|
|JPMB||JPMorgan USD Emerging Mkts Svr Bd||655||D||0.1|
|HYEM||VanEck Vectors EM High Yield Bond||670||C||0.4|
|GRNB||VanEck Vectors Green Bond||680||D||0.02|
|IGEM||VanEck Vectors EMInvGrd+BBR USD SovBd||792||F||0.01|
*Best ETFs Honor Roll Member
1 Cumulative cost of holding a $10,000 position for a decade. Incorporates annual expense ratio, bid/ask spreads and cost offset from securities lending. 2 Reflects bid/ask spreads and trading volume. A = easy to trade.
Data sources: Morningstar; Bloomberg; fund distributors.
Originally published at Forbes