Global and Emerging Market Bond Funds and ETFs... (IRA, broker, fees)

[Teak]

Somebody mentioned that now is a good time to invest in foreign debt, I don't remember who. But, the point is, YOU HAVE MY ATTENTION!

Please give your comments, complaints, experiences, etc. regarding investing in bond funds, closed-end funds, and ETFs that invest in foreign debt.

Let's learn together.

I did a quick bit of research two days back, and here is what I found:

EMB - Emerging market debt ETF; DY 5.90%; fees 0.60%; selling at 1.36% premium to NAV; mostly Russian, Brazilian, Philippines, Indonesia, and Turkey debt. DY = Distribution Yield, not necessarily dividend yield (i.e., might have one-off distributions included such as short-term and long-term capital gains, thus, not always able to be counted on).

PCY - Emerging market debt ETF; DY 6.27%; fees 0.50%; selling at 2.10% premium to NAV; mostly Ukraine, Indonesia, Venezuela, Turkey, El Salvador debt.

GIM - Global income closed-end fund; DY 15.63%; fees 0.74%; selling at 1.43% premium to NAV. Russia, Sweden, Korea, Poland, France and Indonesia debt. Nice mix of developed and emerging markets but the 15% DY is misleading, probably due to a large distribution (cap gains, etc.) last December. By my calculations, the dividend yield is more like 5.4%.

TEI - Emerging markets closed-end fund; DY 11.60%; fees 1.19%; selling at 2.27% discount to NAV. Argentina, Iraq, Brazil, Mexico, Indonesia debt. Again, the DY seems a bit too high and I calculate a dividend yield of 7%.

TEI pays distributions (dividends) quarterly, the other three monthly. I like monthly for the fact that you get 12 compounding events per year rather than just 4. GIM and TEI are offered by Templeton, which has a long history of global investing; the other two are short-term ETFs meaning they do not have much of a track record yet.

I am leaning towards GIM. Any other opinions out there?

[LongArm]

You're right about the GIM yield--in fact, Yahoo lists it as 5.4%. You're also right about the big distribution in December--12.4% at the time--and after a LOSING year. Most people don't like paying tax on 12.4% in "gains" that they can't see or didn't partake in. Just something to keep in mind if you're holding this in December.

[mysticaltyger]

I personally like the following funds:

Loomis Sayles Bond Fund. (LSBRX). It can buy a fairly high % of international bonds, including emerging market bonds. It got clobbered last year but has made up for a lot of it's losses this year. The one thing I did right was buy more shares at the end of last year and early this year when the fund was getting hammered. .94% for retail share class. If you have 100K to invest, it's .66%

Also, there's Loomis Sayles Global Bond. The other Loomis Sayles fund has better returns, but this one has good returns as well.

Then there's T. Rowe Price Emerging Markets Bond. PREMX. This fund has average returns for its category, but is also less volatile than other funds in the category. It's not a great fund. But most funds in this category charge a load and the T. Rowe fund is no load, so that makes a difference.

[chet everett]

Bonds in "emerging markets" are the oddest of beasts -- bonds are generally for those that are RISK AVERSE yet the lack of "first world" standards for reporting and protection means that while the "musical chairs" look good now when the music stops the real risks are very very very high.

[Teak]

Originally Posted by mysticaltyger

I personally like the following funds:

Loomis Sayles Bond Fund. (LSBRX).

I owned the precursor to LSBRX; it was called the Neuberger-Berman High Income bond fund, NBHIX, which I liked, but I dumped it with my other funds when I went to individual stock investing. My understanding is that they closed NBHIX and either created, or merged with, LSBRX.

Then there's T. Rowe Price Emerging Markets Bond. PREMX. This fund has average returns for its category, but is also less volatile than other funds in the category. It's not a great fund. But most funds in this category charge a load and the T. Rowe fund is no load, so that makes a difference.

In addition to the four above (GIM, PCY, EMB, TEI), I checked out the following:
FEMDX
MEDAX
PAEMX
PREMX

The problem with them is that either they had a front-end load through my broker (PAEMX and PREMX) or else fees above 1% (FEMDX, MEDAX, and PAEMX). As you said, PREMX is just below 1%, but the broker's fee 'transfer fee' (typically $49.95) put me off.

Another fund that I have held in the past is DODIX, which is the Dodge & Cox Income fund. Dodge & Cox is highly rated as a fund company, but I had to pay $49.95 to get into the fund, and $49.95 to get out of the fund! No more of that.

I use Charles Schwab, so try to find funds that do not require a front-end load, or transfer fee.

[Teak]

Originally Posted by chet everett

Bonds in "emerging markets" are the oddest of beasts -- bonds are generally for those that are RISK AVERSE yet the lack of "first world" standards for reporting and protection means that while the "musical chairs" look good now when the music stops the real risks are very very very high.

Yes! You are absolutely correct. For this increased risk, we expect to earn a higher return. I think that, basically, that is why I chose GIM over the others. It has a mix of emerging market and developed nation debt; for example, one does not typically consider Sweden and France in the same risk category as Indonesia, Turkey, Venezuela, or Iraq.

But if you want to juice the returns, you have to take a risk with those dodgy nations hoping that the steady eddies will cover your potential losses.

[ndfmnlf]

Bonds are for safety while stocks are for growth. Hence, I keep my bonds on the short term and high quality end of the spectrum. This means short term treasuries and municipal bonds, perhaps some investment grade corporate bonds and TIPS. If you want growth/capital appreciation, do it on the stock side of your portfolio.

Why not do something like this: put 70% of your money in short term US treasuries and TIPS, and 30% in very aggressive investments like small and micro-cap emerging market stocks? That way, whatever happens, your downside is limited to 30%. A simulation of this kind of portfolio at the bogleheads site showed that it would have returned 10 to 12% annually over the past 30 years with lower standard deviation and higher Sharpe ratio (i.e higher risk adjusted returns). Sharpe ratio - Wikipedia, the free encyclopedia

[mysticaltyger]

Originally Posted by Teak

I owned the precursor to LSBRX; it was called the Neuberger-Berman High Income bond fund, NBHIX, which I liked, but I dumped it with my other funds when I went to individual stock investing. My understanding is that they closed NBHIX and either created, or merged with, LSBRX.



In addition to the four above (GIM, PCY, EMB, TEI), I checked out the following:
FEMDX
MEDAX
PAEMX
PREMX

The problem with them is that either they had a front-end load through my broker (PAEMX and PREMX) or else fees above 1% (FEMDX, MEDAX, and PAEMX). As you said, PREMX is just below 1%, but the broker's fee 'transfer fee' (typically $49.95) put me off.

Another fund that I have held in the past is DODIX, which is the Dodge & Cox Income fund. Dodge & Cox is highly rated as a fund company, but I had to pay $49.95 to get into the fund, and $49.95 to get out of the fund! No more of that.

I use Charles Schwab, so try to find funds that do not require a front-end load, or transfer fee.

It sounds to me like you need to dump your broker or go to the fund company directly. Those broker transfer fees are a huge rip off.

[Teak]

Originally Posted by ndfmnlf

Bonds are for safety while stocks are for growth. Hence, I keep my bonds on the short term and high quality end of the spectrum. This means short term treasuries and municipal bonds, perhaps some investment grade corporate bonds and TIPS. If you want growth/capital appreciation, do it on the stock side of your portfolio.

Okay for you. I don't look at bonds for safety, but rather diversification. Emerging market bonds are probably less correlated with the movement in US stocks, thus, provide a bit of diversification. It used to be that foreign stocks were also less correlated with US stocks, but that correlation has grown tighter and, thus, not suitable for diversifying.

[Teak]

Originally Posted by mysticaltyger

It sounds to me like you need to dump your broker or go to the fund company directly. Those broker transfer fees are a huge rip off.

I could go directly, I suppose, but the online brokerage account makes it so easy for money management from afar (I live overseas). There are plenty of offerings from Schwab that do not require a transfer fee or front-end load that I still have decent choices.

I suspect that it is the Dodge & Cox company, for example, that charges the transfer fee, not Schwab. For example, the Neuberger Berman fund had no transfer fee being part of the SchwabOne offerings. These companies choose to cut deals with each other, or NOT. The fees reflect which ones have deals together, and which ones don't.