HoldingsNon-U.S. government bonds from countries including France, Germany and Japan
If you received a tax refund last year, it essentially meant you loaned the government your money at 0% interest. Wouldn’t it be nice to lend the government your money and actually see a return?
Investing in bonds may seem dull compared to stocks, especially when the market is on a tear.
Here’s the thing. Bull markets (markets that are on the rise) fizzle out at some point, however, and when stocks take a dive, a portfolio bolstered with bonds could help you diversify, and cushion the landing.
And while having a diversified portfolio is important, you may want to consider diversifying your holdings geographically, too. That is, spread your money around the globe with a fund that provides exposure to international markets.
In this case, we’re talking about international debt.
Bonds Worldwide follows the Vanguard Total International Bond ETF (ticker: BNDX), which provides that access on Stash.
What’s in the Bonds Worldwide fund?
BNDX is an index exchange-traded bond fund that gives investors exposure to major bond markets outside of the U.S. The fund is mostly composed of sovereign bonds, which are bonds issued by national governments.
Bonds Worldwide tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index, which reflects global debt markets.
In short, the fund’s holdings consist of government debt from around the world, and according to the fund’s prospectus, has built-in hedging strategies to reduce risk associated with exchange rate fluctuation, which can increase volatility.
Treasury bonds from the governments of Germany (35%), France (26%), the U.S.(23%) make up the bulk of the fund’s holdings. The bonds have varying maturity dates, ranging from next year until well into the 2040s.
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Fund performance and other details
Vanguard launched the fund in 2013.
Because it’s comprised of sovereign debt, cash, and government bonds, the fund hasn’t provided the explosive returns of some stocks over the past several years. Instead, it’s clocked a more measured performance.
Year-to-date, the fund has had a return of -0.31%, as of March 20, 2018, according to Morningstar. While that’s not stellar, looking back at the past couple of years provides more context: Share prices increased 2.4% in 2017, and 4.6% in 2016.
When the fund debuted in June of 2013, share prices were hovering right above $50. As of March 20, 2018, share price is over$54. Shares peaked at more than $56 in the summer of 2016.
By way of comparison, the iShares Core International Aggt Bd ETF (ticker: IAGG) has performed congruently. It launched in 2016 and tracks the Bloomberg Barclays US Aggregate Bond TR USD index, and the fund had a return of 5.09% in 2016 and 2.09% in 2017, according to Morningstar.
Risks and considerations
As Bonds Worldwide is composed of bonds, it’s potentially less risky than funds comprised of stocks. But not all bonds are equal, either.
While BNDX does provide investors some risk mitigation, because it also holds U.S. government debt, foreign government bonds and currency are the riskiest element of the fund. One reason is that currency exchange rates are subject to change, and governments can raise interest rates, which affects bond prices.
Finally, there is an element of risk associated with non-diversification, according to the fund prospectus. Vanguard considers the fund to be “non-diversified”, because the assets originate from a handful of issuers. Therefore, if only a few of the assets perform poorly it can disproportionately affect the whole fund.
BNDX has an expense ratio of 0.11%, compared to the average of 1.01% for international income funds in 2016, according to the fund prospectus.
- BNDX provides exposure to the international debt market
- The fund is made up of government bonds from nations around the world
- Returns are lower than stock-heavy ETFs, but so is the risk