The international debt market represents a vast space for the fixed income investor looking to venture abroad for yield. One such funds is the Vanguard Total International Bond Index Fund ETF Shares (BNDX).

“The global bond market is far larger and more liquid than the global stock market,” an article in The College Investor. “Over the last 25 years, the bond market has, on average, been 79% larger than the stock market, according to learnbonds.com.”

BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. International bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolio.

The ETF employs an indexing investment approach designed to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.

“Foreign bonds provide another means of portfolio diversification. A well-diversified portfolio protects capital against drawdowns or, at least, outsized drawdowns,” the article explained.

“Foreign bonds also give you exposure to other parts of the world,” the article added further. “If you have bonds in European and Asian countries that are doing well while the U.S. economy is declining, your bonds will do well also although your U.S. bonds might not. In this case, being diversified outside of the U.S. limits the negative impact of your bond holdings from a U.S. decline.”

Summarily, BNDX:

  1. Attempts to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged).
  2. Employs hedging strategies to protect against uncertainty in exchange rates.
  3. Provides a convenient way to get broad exposure to non-U.S. dollar denominated investment-grade bonds.
  4. Is passively managed, using index sampling.

BNDX Chart

A Domestic Play on the U.S.A.

U.S. fixed income investors who want to stay at home or add domestic-only bonds to their portfolios can do so with the Vanguard Total Bond Market Index Fund ETF Shares (BND). BND seeks the performance of Bloomberg Barclays U.S. Aggregate Float Adjusted Index.

The Bloomberg Barclays U.S. Aggregate Float Adjusted Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.

BND Chart

For more news, information, and strategy, visit the Fixed Income Channel.