When added to a well-rounded portfolio, international bonds present an opportunity to achieve lower risk-adjusted earnings than what the global equities markets typically provide. Exposure to global debt securities is attractive to investors wanting to diversify fixed income positions held in the domestic market with bonds issued by foreign entities.
Within international bond mutual funds, managers select certain global debt positions with varied maturity dates, country exposure and overall default risk exposure to reduce the potential for loss within a portfolio while attempting to earn a modest return. Investors who want to participate in the international bond market through mutual funds should understand the risks by reviewing the current prospectus for the below funds, which have been the favorites among investors in 2018.
PIMCO International Bond Fund (PFORX)
The PIMCO International Bond Fund – previously named the PIMCO Foreign Bond Fund – seeks to provide investors with maximum total return through preservation of capital and prudent investment management of a portfolio of fixed income securities. The fund's managers invest at least 80% of fund assets in fixed income holdings that have economic ties to foreign countries. The majority of investments made within the mutual fund include investment-grade securities, although fund managers have the flexibility to invest up to 10% of investor assets in junk bonds with B ratings or higher. With an inception date of 1997, the fund in October 2018 had $9.6 billion in fund assets and generated a 10-year annualized return of 7.27%.
The fund currently diversifies its holdings across a wide range of countries, including the United Kingdom, Germany, France, Canada and Sweden. Investments within the fund are focused primarily in government issues comprising over 88% of the funds holdings, with a small percentage allocated to corporate bonds. A minimum investment of $1,000 is required. The fund is hedged against the U.S. dollar.
Goldman Sachs Global Income Fund (GSGLX)
The Goldman Sachs Global Income Fund was established in 1991 and currently manages $606.8 million assets. The mutual fund seeks to provide high total return with a focus on current income as the primary objective and capital appreciation as the secondary objective. The fund's managers invest a minimum of 80% of fund assets in fixed income securities of both domestic and foreign issuers, without limitation in regard to credit quality or duration of the underlying securities. As of October 2018, the fund has generated a 10-year annualized return of 4.52% with an expense ratio of 0.79%.
The fund's managers diversify holdings in terms of country exposure as well as by type of debt issue. Top country holdings with the mutual fund include the United States at 57.9%, the Eurozone at 14.2% and Japan at 14%. Fund assets are dispersed among various types of debt issues, including mostly government bonds, corporate bonds and securitized debt issues. A minimum initial investment of $1,000 is necessary.
T. Rowe Price Global Multi-Sector Bond Fund (PRSNX)
The T. Rowe Price Global Multi-Sector Bond Fund seeks to provide investors with high current income with capital appreciation as a secondary objective. It is a newer entrant to the international bond fund market, with an inception date of 2008. Of the fund's $803.02 million assets, a minimum of 80% is invested in a portfolio of fixed income securities intended to enhance income for investors. As of October 2018, the fund has generated a five-year annualized return of 3.55% with an expense ratio of 0.72%.
The fund's managers invest in a variety of debt securities. Country exposure is also diversified within the fund, including the U.S. at 41.9%, Italy at 4.9%, Mexico at 4.4% and Canada at 3.4%. Investors are required to make an initial investment of $2,500, or $1,000 in an IRA.
Templeton Global Bond Fund (TPINX)
The Templeton Global Bond Fund seeks to provide current income with capital appreciation and income growth, investing 80% of its assets in government bonds and governments related entities across the globe. The fund has been running continuously since its launch in 1986, using its $34.8 billion to achieve a five-year annualized return of 1.59% with an expense ratio of 1.03%, which is rather high in this category.
The fund invests broadly but with a heavy stack towards North America at 44.55%. Cash and cash equivalents make up for the second largest portion of the portfolio at 26.49%, while Asia and the Middle East make up for the lions share of the remainder. The fund requires a smaller minimum investment of only $1,000.
Oppenheimer International Bond Fund (OIBAX)
The Oppenheimer International Bond Fund has an inception date of 1995, and since that time it has provided investors with the opportunity to achieve total return by investing in the global bond market. Of the mutual fund's $5.47 billion assets in October 2018, the fund's managers invest a minimum of 73% in foreign debt securities outside the U.S. Developed and emerging markets are included in the fund's investment mix, and issuing entities of any market capitalization are allowed within the fund. As of October 2018, the fund has generated a 10-year annualized return of 3.62% with an expense ratio of 1%.
The fund provides exposure to a number of foreign issuers, including Mexico at 9.2%, the U.K. at 8.3% and India at 7.6%. The mutual fund includes corporate and government debt securities, although it gives minimal weight to securitized debt issues. Investors are charged a maximum sales load of 4.75% when they purchase shares, and an initial investment of $1,000 is necessary.