Why invest in international bond funds?
International bond funds are funds that invest in debt issued overseas, either by foreign governments or corporates or both. These funds invest either in local currencies or U.S. dollar–denominated debt securities. International bond funds can provide viable alternatives for portfolio diversification by spreading interest rate and market risks over a wider geography.
Advantages of international bond funds
In this series, we’ll compare the historical performance of international bond funds like the PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) with that of domestic funds investing in U.S. Treasuries. We’ll also compare the performance of domestic corporate bond funds with international corporate bond funds like the Invesco PowerShares International Corporate Bond Portfolio (PICB).
We’ll compare ETF performance using metrics that are important to investors: total returns earned, the risks taken to earn them, and the Sharpe Ratio, which is a measure of risk-adjusted returns that tells us whether the returns earned by an ETF are commensurate to the risks taken to earn them.
To read about the impact of the Fed’s monetary policy and the outlook for the domestic fixed income market, please continue to Part 2 of this series.