foreign bond fund

[natedogg]

I'm considering allocating this year's ROTH contribution to a foreign bond fund. I want to diversify against the dollar in case all the doom and gloom about it actually comes true. I figure investing in something foreign will help. Secondly, if US interest rates continue to rise, I assume this will signal a similar arise in Europe and Asia. Which means foreign bond fund could be good....

Thoughts? Thanks in advance.

natedogg

[GeorgeF]

I own exchange traded funds GIM FCO FAX TEI CMK. Research them at www.cefa.com (http://www.cefa.com) www.etfconnect.com (http://www.etfconnect.com) finance.yahoo.com.

I like the pimco fund familly, but do not own any.

You can also us the screener: http://screen.yahoo.com/funds.html

You might also consider a foreign currency bank account at www.everbank.com. (http://www.everbank.com.) or even precious metals or commodity/natural resources investments.

"I assume this will signal a similar arise in Europe and Asia"

There is no reason for this to be true. In the past (but not necessarily the future) interest rates of various countries moved in similar directions but with very different sizes of moves. See Homer/Sylla 'History of Interest rates' (a suprisingly interesting book)

[natedogg]

George, thanks for the recommendations, including the book rec.

Does your answer imply that yes, you think foreign bonds are a good way to go right now? If so, can you give a few reasons why? Thanks.

natedogg

[AceHigh]

There is additional risk associated with foreign bonds because you have to factor in the exchange rate. The US dollar is very low against the euro. To calculate the foreign bond rate you will need to make a guess at what the dollar will do for the term of the bond.

[natedogg]

[ QUOTE ]
There is additional risk associated with foreign bonds because you have to factor in the exchange rate. The US dollar is very low against the euro. To calculate the foreign bond rate you will need to make a guess at what the dollar will do for the term of the bond.

[/ QUOTE ]

That's kind of the point tho right? If all these people squawking about the coming demise of the dollar are right, then foreign bond funds are a fantastic place to be?

I guess the next question would be, how likely to you all think it is that the dollar will melt down the way some these economists are claiming it will?

natedogg

[GeorgeF]

I have no idea, I personally try to diversify. If you have US$100,000 you are not being conservative, you are betting 100% on the US$. Why not put $30,000 in an international bond fund, or forgien currency account, just in case there is a problem with the US$.

FWIW US interest rates seem to be going up and matching foreign rates. Also the Europeans seem to be have strikes and other labor troubles. They are also taking about allowing larger deficits. The election in Iraq might provide an excuse to end that situtation. All of this would imply a stronger US$.

[parttimepro]

This is trickier than it should be, because a lot of foreign bond funds hedge their currency exposure. Be sure you get an unhedged fund if you're looking to profit from a weak dollar. The one I have is LSGLX, it has no loads and a low fee, but is only 2/3 foreign. Also, if you expect interest rates to rise, you'll want a fund that invests mainly in short-term bonds. LSGLX has mostly intermediate durations.

Another way to profit from a falling dollar is investing in foreign utilities. Most foreign companies that you've heard of export to the US, so if the dollar goes down, you'll make money on the exchange rate, but the company will export less, so the stock will go down in local currency. Foreign utilities don't have this problem. They'll also be resilient in the case of a global economic downturn. I own EN and KEP, and am looking at UU.

[lehighguy]

1) Get actual reports on interest rate enviorments in foriegn countries. Decisions are not that highly correlated to the US rate.

2) Don't invest in Japan bonds. However, UK bonds and AUstralian bonds have VERY high rates right now. I would look into those countries more, especially UK.

3) Good move betting against the dollar, its worth jack.

4) Find a fund with low fees. No one ever looks at the fees. Over the long run managers all get an average return anyway, low fees is the ticket.

[lehighguy]

ANother thing to note. RIsing rates bad for CURRENT bond holders. You want a falling rate enviorment.