Despite economies reopening amid the Covid-19 pandemic, a high degree of uncertainty still remains, which is causing global funds to show a preference for bonds over equities. A resurgence of coronavirus cases has investors worrying that a return back to normalcy will take longer than anticipated.
Per a Reuters report, “business activity has picked up since May, but the latest data suggest the momentum has slowed on fears of renewed lockdowns and delayed re-openings caused by a resurgence in new coronavirus cases in many countries.”
“The U.S. economy suffered its steepest decline on record in the second quarter, and Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity,” the report added further. “He pledged stimulus support for years, pushing the dollar on course for its worst month in a decade.”
While high-flying tech stocks are all the rage given that social distancing measures are forcing more use of technological advances, investors are still wary of the equities market as a whole.
“Several businesses are still gutted, coronavirus infections are rising around the world and so are the fatality rates, which makes any predictions on economic recovery a gambling bet or at best difficult. Stock markets seem to be running on the former – on hope rather than any meaningful theory,” said a chief investment officer at a large U.S. fund management company.
International Bond ETF Options
Exchange-traded fund (ETF) investors looking for bond exposure with an international flavor can look to funds like the VanEck Vectors International High Yield Bond ETF (IHY). IHY seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE BofAML Global ex-US Issuers High Yield Constrained Index.
The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index is comprised of below investment grade bonds issued by corporations located throughout the world (which may include emerging market countries) excluding the United States denominated in Euros, U.S. dollars, Canadian dollars or pound sterling, and issued in the major domestic or Eurobond markets.
Another overseas option is the Vanguard Total International Bond Index Fund ETF Shares (NasdaqGM: BNDX). BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds.
BNDX 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). This index provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.
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