Market Overview

How International Bond ETFs Can Add Diversification

How International Bond ETFs Can Add Diversification

International bond ETFs are a great option to increase diversity within a portfolio.

The niche sector provides exposure to the international markets along with fixed income securities. The ETFs can also be a play on the foreign currencies if the bonds are denominated in local currencies.

Highlighted below are two international ETFs that can assist in better diversifying a portfolio.

The Vanguard Total International Bond ETF (NYSE: BNDX) measures the investment return of investment grade corporate bonds issued outside of the United States.

The most weighted regions include Europe at 57.6 percent, the Pacific region making up 27.7 percent of the ETF and North America with a 7.1 percent weighting. Due to falling yields, BNDX currently yields only 1.1 percent.

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However, since bond yields and prices have an inverse relationship the recent falling yields have caused bond prices to rise, thus benefiting the ETF. It is up 6 percent year to date and 3 percent over the last six months.

The international bond ETF has an expense ratio of 0.20 percent.

The SPDR Barclays International Treasury Bond ETF (NYSE: BWX) is made up of international sovereign debt denominated in local currency, in the form of bonds ranging from a rating of Baa to Aaa.

The most weighted countries in the ETF include Japan making up 22.2 percent, the United Kingdom with a 7.7 percent weighting and Italy coming in at 6.8 percent. BWX is down 2 percent year to date and down 6 percent over the last six months. The ETF has an expense ratio of 0.50 percent.

With the market in one of it’s most impressive rallies in years, it is important to position your portfolio correctly in the event of a pullback.

The international bond ETFs above are some of the number of fixed income investments that can be use to protect a portfolio during volatile environments.

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