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Value Line’s International Bond objective group is a very broad grouping of funds. The funds in this category invest in foreign and U.S. bonds or exclusively in foreign fixed-income securities in pursuit of current income. Clearly, this allows for the inclusion of funds like Pioneer Global High Yield Fund (PGHYX), Federated International High Income Fund A (IHIAX), and Goldman Sachs Local Emerging Markets Debt Fund A (GAMDX), all of which invest in debt securities in emerging markets.  

“International” versus “world” is also an important distinction, as BlackRock International Bond A (BIIAX) is very different from BlackRock World Income A (MDWIX) even though the names are similar—one can invest in any country, while the other invests in any country outside of the United States. Key words to look for include international and foreign, which suggest that the fund does not invest in U.S. bonds, and world and global, which suggest the fund can own securities from any country.

There are even funds that focus on sections of the yield curve, such as Payden Global Short Bond Fund (PYGSX), which, as the name suggests, invests only in short-term bonds. And still others, such as Credit Suisse Global High Yield (RBSFX) that has a focus on bond-quality types. The variety here can be a bit overwhelming.

Among things to consider in this group is the broad mandate of the funds. With so much variety in this objective group, what does the fund you are looking at actually do? You want to be keenly aware of the fund’s objective and investment tactics so there are no surprises down the road. One of the more important tactics that should be reviewed is currency hedging. Some funds allow hedging, believing that it protects shareholders from changes in the value of currencies that have no relation to the bonds they own, while others believe these changes eventually reverse and, thus, are a “wash” over time. Unhedged portfolios, however, can be subject to heightened volatility, so investors need to be cognizant of a fund’s position on this matter.  

While the International Bond objective group encompasses many types of funds, it also allows for a significant amount of leeway when creating a portfolio. Indeed, most investors would benefit from some exposure to foreign bond markets. Exactly how that exposure is achieved is up to the individual, and can be easily tailored to meet just about any taste from conservative to aggressive.

Over the long term, the International Bond objective group has been a good performer relative to the broader market, as measured by the Barclays Aggregate Bond Index. For the 10-year period ended June 28, 2013, the group had an annualized gain of 5.3%, while the Barclays Aggregate Bond Index reported an annualized gain of 4.4%. For five years and three years, the group had returns of 5.1% and 4.8%, respectively, while the Barclays Aggregate Bond Index reported gains of 5.1% and 3.5%, respectively. During the past year, the International Bond objective group reported a return of 1.5% compared with loss of 0.7% for the Barclays Aggregate Bond Index. The group has a greater-than-average Risk Rank of 4, indicating that funds in this group might appeal to investors with an above-average tolerance for risk that wish to participate in international bond investments. 

Fund Name: Fidelity Advisor Global High Income Fund
Ticker: FGHAX
Investment Adviser: Fidelity Management & Research Company (FMR)
Year-to-Date Return: -0.33%
Benchmark: BofA Merrill Lynch Global High Yield and Emerging Markets Plus Index
Objective: The Fund seeks a high level of current income. Growth of capital may also be considered.
Investment Strategy:
• Normally invests in income producing debt securities, preferred stocks, and convertible securities, with emphasis on lower-quality debt securities, of US and non-US issuers, including emerging market countries.
• Can also invest in non-income producing securities, including defaulted securities and common stocks.
• Invests in companies with troubled and uncertain financial condition.
• Allocates investments across different countries and regions.
• Invests in securities issued throughout the world, including potentially significant investments in US issuers.

Fund Name: Ivy Global Bond Fund
Ticker: IVSAX
Investment Advisor: Ivy Investment Management Company (IICO)
Year-to-Date Return: -0.86%
Benchmark: Barclays Multiverse Index
Objective: The Fund seeks to provide a high level of current income. Capital appreciation is a secondary objective.
Investment Strategy:
• Invests at least 80% of its net assets in a diversified portfolio of bonds of foreign and US issuers.
• May invest in securities issued by foreign or US government and in securities, including loan participations and other loan instruments, issued by foreign or US companies of any size, including those in emerging markets.
• Fund may invest up to 100% of its total assets in securities denominated in currencies other then the US dollar.
• Fund may invest in bonds of any maturity.

Fund Name: Goldman Sachs Global Income Fund
Ticker: GSGIX
Investment Advisor: Goldman Sachs Asset Management International (GSAMI)
Year-to-Date Return: -0.96%
Benchmark: Barclays Global Aggregate Index
Objective: The Fund seeks a high total return, emphasizing current income, and, to a lesser extent, providing opportunities for capital appreciation.
Investment Strategy:
• Invest at least 80% of its net assets plus any borrowings for investment purposes in a portfolio of fixed income securities of US and foreign issuers.
• Fund will have at least 30% of its net assets, after considering the effect of currency postings, denominated in US dollars.
• Invest in securities of issuers in at least three countries.
• Seeks to meet its investment objective by pursuing investment opportunities in foreign and domestic fixed income securities markets and by engaging in currency transactions to seek to enhance returns and to seek hedge its portfolio against currency exchange rate fluctuations.


In the table below, we have listed 10 top-performing International Bond funds through
June 28, 2013 that we follow in our Fund Advisor database.

10 Top International Bond Funds Performance 

  

 

Fund Name 

Ticker 

% year-to-date 

Total Return 

% 1 Month 

Total 

Return 

% 3  

Month 

Total 

Return 

% 6 Month 

Total  

Return 

% 5 Year 

Total 

Return 

Annualized 

Artio Global  

  

High Income A  

BJBHX 

3.20 

-2.18 

-0.19 

3.20 

9.35 

Goldman Sachs  

  

High Yield  

  

Floating Rate A 

GFRAX 

1.63 

-0.72 

-0.15 

1.63 

  

Pioneer Global 

  

High Yield A 

PGHYX 

0.55 

-2.94 

-2.63 

0.55 

7.30  

Eaton Vance GL  

  

Macro Absolute  

  

Return Adv A 

EGRAX 

0.20 

-2.01 

-2.30 

0.20 

  

Fidelity Adv  

  

Global High  

  

Income A 

FGHAX 

-0.33 

-2.94 

-1.72 

-0.33 

  

Dreyfus Global  

  

Dynamic Bond A 

DGDAX 

-0.74 

-1.57 

-1.43 

-0.74 

  

Ivy Global Bond  

  

IVSAX 

-0.86 

-1.72 

-2.04 

-0.86 

3.72 

Waddell  & Reed  

  

Adv Global Bond  

  

UNHHX 

-0.94 

-1.97 

-2.37 

-0.94 

3.87 

Goldman Sachs  

  

Global Income A 

GSGIX 

-0.96 

-1.76 

-1.69 

-0.96 

7.30 

Blackrock World  

  

Income A 

MDWIX 

-1.07 

-1.56 

-0.91 

-1.07 

3.61 

International  

  

Bond Objective  

  

Group 

  

-4.43 

-2.95 

-3.80 

-4.43 

5.07 

  

At the time of this article's writing, the authors did not have positions in any of the funds mentioned.