Morningstar Advisor - Summer 2008 - 79

and require $10,000 or less as an initial investment. We also zeroed in on funds covered by Morningstar analysts. Special Criteria 5 Distinct Portfolios Only And ( Morningstar Category 5 Emerging Mkts Bond Or Or And And And Morningstar Category 5 World Bond Morningstar Category 5 Multisector Bond Purchase Constraints Audited Expense Rati Analysis 5 Closed-New Investment 5 < 33 Before revealing our results, keep in mind that as emerging-markets bonds have rallied recently, many of these funds had a big tail wind. Like stocks, bonds move in cycles as economics, valuations, and investors’ appetites for risk change, so we urge investors to maintain a long-term investment horizon and keep their expectations in check, particularly over the short term. As of May 20, our screen pulled a mix of 13 world-bond, emerging-markets-bond, and multisector-bond funds covered by Morningstar analysts. Here are four funds that we especially like. Templeton Global Bond TPINX This is another good choice from the worldbond category. Like most funds at this shop, several managers and a team of analysts each run a portion of the fund’s assets. The management team is primarily on the lookout for investment-grade debt (the portfolio sports an average credit quality of AA); toward the end of 2007, however, the fund held roughly 25% of assets in local currency-denominated emerging-markets bonds. This allocation, in addition to a roughly 12% stake in junk bonds, has caused the fund to stumble a bit in recent months as nervousness in the markets have caused investors to flee to the highestquality issues. That said, we’re confident in this team’s experience and approach; with many managers funneling their best ideas into the fund, the offering has broad country, issuer and issue diversification. This, along with a reasonable price tag, has added up to an enviable long-term record. DWS Emerging Markets Fixed Income SCEMX This is a multisector-bond offering run by Chris Molumphy, who heads up the firm’s bond research group, and by Eric Takaha from the high-yield research team. While multisector-bond funds are defined by their managers’ ability to invest anywhere in the fixedincome universe, this fund has been a bit bolder than most. For one, managers have kept a rather hefty stake in high-yield issues, though they did begin to pare that back in early 2007 because they didn’t think they were adequately compensated for those risks. The managers have also held more emerging-markets debt than most peers have, even venturing into low-trafficked areas such as Iraqi sovereign debt. They generally keep most of their foreign allocation devoted to investment-grade debt, however. In the end, we think that the analyst bench at Franklin provides these managers ample resources to take on these extra risks. We also like the fund because its low expense ratio has given it a hand in achieving peer-beating returns over long time periods. Karin Anderson is a fund analyst with Morningstar. On the emerging-markets bond front, this fund is an interesting choice for bold investors. Managers Brett Diment, Edwin Gutierrez, and Nima Tayebi run the show. A large allocation to Turkey—which has a large current account deficit—slowed returns in late 2007 and into 2008. Likewise, the fund was also hurt by its investments in politically riskier areas such as Venezuela and Argentina. But the managers also invest in issues from Brazil and Mexico. Among the world-bond funds, Morningstar analysts have long been fans of this one. While the dollar has sagged and interest rates have declined, the fund’s enviable five-year record is steady. For the trailing year ending May 23, the fund has delivered a peer-beating 12% return. MorningstarAdvisor.com 79

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Morningstar Advisor - Summer 2008

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