As developing nations continue to grow and investment dollars find their way overseas, international bond exchange traded funds (ETFs) may be the answer to portfolio diversification and risk minimization.
As ETFs continue to grow in popularity, they can offer investors exposure to international debt with relative ease. The reasons behind gaining exposure to international debt include spreading out the sensitivity of U.S. interest rate movements and playing currency exchange movements. However, Kyle Waller of Index Universe states that it is generally a better idea to use international bonds of developed nations rather than that of emerging nations.
It is equally important to consider the risks involved in dealing with international bond ETFs – in particular, the increase in default risk that is expected to be seen in some European nations (Know the risks of Bond ETFs). For this reason, it is important to completely understand what one’s investments hold.
A few international bonds to consider are:
- iShares S&P/Citi Intl Treasury Bond (IGOV), which carries an expense ratio of 0.35% . IGOV holds 44 different bonds with an average duration of 5.8 years and gives bond exposure to markets like Japan, the United Kingdom, France and Germany.
- iShares S&P/Citi 1-3 Yr Intl Treasury Bd (ISHG), which carries an expense ratio of 0.35 %. ISHG holds 26 bonds with an average duration of 1.67 years and gives exposure to markets like Japan, Belgium, Spain and Finland.
- SPDR Barclays Capital Intl Treasury Bond (BWX), which carries an expense ratio of 0.35%. BWX holds 82 different international bonds, is primarily focused on Japan, Germany and Italy and has an average duration of 6.1 years.
