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How Risky Is Risky in World-Bond Funds?

Our FIEA tool allows you to dissect funds in multiple ways, offering an eye-opening look under the hood.

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Global-bond fund managers routinely disclose fund-level credit-quality, sector, region, and country exposure breakdowns on their websites, but it can be extremely difficult to deduce where a strategy is taking its credit risk. It can also be hard to discern how far afield it is from the commonly used Bloomberg Barclays Global Aggregate Bond Index. Earlier this summer we rolled out a new Fixed Income Exposure Analysis, or FIEA, component for Morningstar Direct and Morningstar Office users to help investors make sense of their individual portfolios and thereby make better comparisons across funds. Elements of this will be available in fund reports on Morningstar.com and other products later this summer.

We will take a look at the index-tracking Vanguard Total World Bond ETF (BNDW) as our baseline with the FIEA tool. It tracks a float-adjusted version of the investment-grade-focused Global Aggregate Index, with roughly 60% in government bonds, 20% in corporates, and various securitized sectors making up the rest. Emerging-markets bonds, which can add a lot of volatility, represent just 3% of this benchmark. Though this ETF’s non-U.S. holdings are all hedged back to the U.S. dollar (it resides in the world bond U.S.-dollar hedged Morningstar Category) it still provides a helpful picture of the larger sector and country components that managers use as guideposts and the level of credit risk that more-conservative world-bond funds take. (In a future iteration, the FIEA tool will incorporate the ability to dig into a portfolio’s currency exposures as well.)  

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Karin Anderson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.