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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 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 have 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 March 29, 2013, the group had an annualized gain of 6.3%, while the Barclays Aggregate Bond Index reported an annualized gain of 5.0%. For five years and three years, the group had returns of 5.5% and 5.0%, respectively, while the Barclays Aggregate Bond Index reported gains of 5.3% and 5.5%, respectively. During the past year, the International Bond objective group reported a return of 5.8% compared with 3.8% 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: Artio Global High Income Fund
Ticker:BJBHX
Year-to-Date Return: 3.40%
Investment Adviser: Artio Global Management LLC
Benchmark: Bank of America Merrill Lynch High Yield Constrained Index
Objective: Maximize total return through principally a high level of current income and secondarily capital appreciation
Investment Strategy:
• Fund invests at least 60% of its net assets in US dollar denominated securities.
• Invests in fixed income securities, debt instruments convertible into common stock, preferred stock and swaps.
• May invest in financial instruments issued by corporations, banks, and governments.
• The fund ordinarily invests in no fewer than three different countries outside the US.
• Invests in bank loans.

  
Fund Name: Huntington World Income Fund
Ticker: HWAFX
Investment Advisor: Huntington Asset Advisors, Inc.
Benchmark: Bank of America ML Global Broad Market Index
Year-to-Date Return: 3.23%
Objective: To maximize current income while attempting to minimize volatility
Investment Strategy:
• Invests in asset classes such as bonds issued by governments and companies.
• May invest in dividend-paying equities of any market capitalization, domestic and foreign bonds, bond exchange-traded funds, derivatives.
• Invests minimum of 25% of its total assets in US securities (allocates different countries and regions, including emerging markets).
• Fund primarily invests in domestic and foreign bonds and Bond ETFs (including 10% of total assets in Fund’s Bond ETFs, 5% of total net assets in “Ultrashort” ETFs).
• May invest up to 10% of its total assets in non-investment grade fixed income securities.
• Non-diversified
Manager’s Philosophy:
• Produce a high level of income and low volatility through the use of high dividend-paying domestic and foreign stocks, preferred stocks.
• Apply foreign and domestic debt option hedges.
• Invests in Master Limited Partnerships, Canadian Royalty Trusts, preferred stocks and foreign and domestic bonds.
• Focus on income (to utilize options to a greater extent to help lower volatility).

Fund Name: Pioneer Global High Yield Fund
Ticker:PGHYX
Investment Adviser: Pioneer Investment Management, Inc.
Benchmark: Bank of America ML Global High Yield and Emerging Markets Plus Index / Bank of America ML High Yield Master II Index
Year-to-Date Return: 3.27%
Objective: Maximize total return through a combination of income and capital appreciation
Investment Strategy:
• Invests at least 80% of its total assets in below investment grade debt securities and preferred stocks (including governmental and corporate issuers in emerging markets).
• May invest in derivative instruments (such high yield debt securities and preferred stocks).
• Invests in securities with a broad range of maturities.
• Fund may invest in investment grade and below investment grade convertible bonds, preferred stocks.
• May invest up to 20% of its net assets in floating rate obligations; may invest up to 10% of its assets in equity securities (including commons stocks, exchange-traded funds, depositary receipts, warrants, real estate investment trusts).
Manager’s Philosophy:
• Flexible approach to high-yield investing through investment in US high yield, international high yield, emerging markets bonds.
• Stay diversified across countries/regions, sectors/industries and currencies
• Focus on a value-oriented approach to find the best investment opportunities.

 In the table below, we have listed 10 top-performing International Bond funds through
March 29, 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

3.40

1.22

3.40

7.07

9.83

Huntington World Income A

HWAFX

3.23

0.64

3.23

1.42

  

Pioneer Global High Yield A

PGHYX

3.27

0.45

3.27

7.28

8.50

Eaton Vance GL Macro Absolute Return Adv A

EGRAX

2.57

0.60

2.57

2.01

  

Loomis Sayles Absolute Strategy A

LABAX

2.16

0.29

2.16

4.17

  

Goldman Sachs High Yield Floating Rate A

GFRAX

1.78

0.71

1.78

3.04

  

Waddell & Reed Adv Global Bond A

UNHHX

1.46

0.05

1.46

2.71

4.32

Pimco Foreign Bond A

PFOAX

1.43

0.77

1.43

3.12

7.80

Fidelity Adv Global High Income A

FGHAX

1.41

0.30

1.41

5.71

  

Eaton Vance Global Macro Absolute Return A

EAGMX

0.82

0.31

0.82

-0.50

3.30

International Bond Objective Group

  

-0.65

-0.11

-0.65

0.91

5.48

At the time of this articles writing, the author did not have positions in any of the companies mentioned.