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Fund Spy

Will Templeton Global Bond Conquer China Next?

The world's biggest global bond fund takes its one-of-a-kind show to Asia.

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One mutual fund has emerged in recent years as investors' go-to choice for global-bond exposure. Since flows into world-bond funds turned positive in May 2009, Templeton Global Bond (TPINX) has taken in $41.3 billion in new money according to Morningstar's estimates, which represents nearly 60% of total flows into the world-bond category during this stretch. The $61.5 billion Templeton Global Bond now accounts for 40% of the total assets in the world-bond category.

Clearly the fund's popularity owes much to its outstanding record. In the past five years, it gained 11.6% per year on average, beating every other fund in the category and outlegging the Citigroup World Government Bond Index by an average of 360 basis points a year without producing additional volatility. Analytics such as the Sharpe Ratio give the edge to a handful of U.S.-dollar-hedged world-bond funds that don't take any currency risk, but this fund has otherwise produced an excellent risk/reward profile. Meanwhile, investors craving diversification have also enjoyed a very modest correlation to the Barclays U.S. Aggregate Bond Index in the past five years that's lower than all but one other fund in the category.

Many investors who've piled into this fund, however, may be surprised to learn just how offbeat it is. Even as it has nearly quadrupled in size during the past two years, its portfolio has shown no sign of shedding its idiosyncratic qualities. By betting on China's economy and shedding interest-rate risk, the fund could be taking its boldest stance yet.

Miriam Sjoblom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.