Morningstar Advisor - Summer 2008 - (Page 78)

Screens Help Your Clients Get More out of Their Bond Portfolios By Karin Anderson This screen zeros in on globe-trotting fixed-income funds that could be welcome supporting players in a portfolio. Regional diversification is just as important among fixed-income funds as it is to the equity funds in a portfolio. By holding fixed-income instruments from around the globe, the portfolio could benefit from foreign currency appreciation, higher yields (particularly from fast-growing emerging markets), and less direct exposure to U.S. interest rates. Of course, there are trade-offs. Currencies do depreciate. Non-U.S. interest rates fluctuate, too, sometimes adversely affecting international bonds. And emerging-markets bond funds have been quite volatile over time, reflecting the risk associated with some markets’ lower credit standings. Over the long term, however, a more balanced portfolio makes sense in a world that is becoming increasingly global. It gives investors exposure to some interesting (and profitable) opportunities while at times smoothing out returns overall thanks to varying economic and interest-rate cycles. Take emerging markets, for example. Although emerging-markets-bond funds sport impressive performance records and could thus be due for a breather—and when they fall, they tend to fall hard—many global-bond portfolio managers argue that emerging markets are becoming more-attractive places to invest for the long haul. Generally speaking, many of these developing countries are less reliant than they were on external capital flows to finance growth, which is a result of stronger economic and political institutions, as well as lower debt and inflation. As a result, some countries’ sovereign debt boasts investmentgrade status. Most recently, Standard & Poor’s upgraded Brazil in April. Meanwhile, some emerging markets continue to grow at a clip much faster than the United States and other developed markets. The best options for global fixed-income exposure are our handful of Analyst Picks, but Morningstar Principia and Morningstar Advisor Workstation are great tools for casting a wider net for world-bond, emerging-marketsbond, and multisector-bond funds. We included multisector-bond funds because many of them, particularly our favorites, invest a meaningful portion of assets in international bonds. We performed this screen in Advisor Workstation, but it can also be done in Principia. First, we limited the screen to reasonably priced funds (those that levy 1.25% annually or less) that are still open to new investment 78 Morningstar Advisor Summer 2008

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Summer 2008

Morningstar Advisor - Summer 2008 Contents Letter from the Editor Contributors Inbox College Planning: Solutions and Concerns ETFs: The Next Chapter Engineering Financial Advice Investment Briefs Flexible vs. Style-Pure Managers: The Evidence Forging a New Commodity Index Work Your Way Through College Planning Sizing Up the Options Best and Worst 529 College-Savings Plans A 529 Travel Guide 10 Tax-Smart Tips for College-Savings Planning Global Dialogue How Sequoia Cranks Out Good Returns Year After Year The Many Layers of David Winters Living on the Edge Stocks to Buy Once a Decade With Munis Feeling the Pain, Some Opportunities Arise Health Care Provides Shelter from Economic Storm Help Your Clients Get More Out of Their Bond Portfolios Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar New on MorningstarAdvisor.com Closer to Fine

Morningstar Advisor - Summer 2008

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