Where Should No-Load Investors Go for Global Bond Exposure?

Its recent performance stutter notwithstanding,  Templeton Global Bond (TPINX) has garnered an amazing level of investor interest (and dollars) during the past few years, picking up nearly $2 billion in assets in the month of August alone. (Inflows have tapered off in recent months, however.) 

The attractions are easy to see. First, and most obviously, the fund's performance has been terrific: During lead manager Michael Hasenstab's tenure, it has landed in the very top echelons of the world-bond category, with a stunning 11% annualized return over the trailing 10-year period. Past performance isn't highly predictive of future results, but investors always hope it will be.

Meanwhile, those who are concerned about the long-term fiscal problems of the U.S. and Europe will also find a lot to like here. As associate director of fund analysis Miriam Sjoblom discusses in this article, Hasenstab has been assiduously avoiding the bonds of debt-laden developed-markets economies, focusing instead on the debt of Asian and non-eurozone European countries with more robust growth rates and healthy financial pictures. That stance could backfire, but there's little doubt that investors in search of truly active management are getting it with this vehicle. (The fund earns a "gold" rating in our new Analyst Rating system.)

The fund is primarily available to investors working with a financial advisor or via 401(k) plans, however, leaving do-it-yourself investors on the outside looking in. Are there reasonable alternatives for no-load investors?

Given the fund's bold and idiosyncratic approach, the short answer is no: In the realm of truly active funds like this one, it's tough to find a close analog. It's also worth noting that the world-bond category includes a more diverse array of strategies than most fund peer groups. Some funds are hedged while others are not; some invest in the U.S. while others do not, and so on. That makes finding close peers doubly difficult.

That said, investors who can't buy the Templeton fund shouldn't give up on the category. To help identify some of the best world-bond funds, we turned to our  Premium Fund Screener. We began by screening for no-load world-bond funds that are accepting new investor dollars and aren't available exclusively to select groups such as 401(k) participants. We then layered on some fundamentally based screens, such as below-average expense ratios and long manager tenures. We also looked for funds whose managers have been able to deliver a decent risk/reward profile, as evidenced by a Morningstar Rating for funds of 3 stars or higher.

That screen yielded a compact list of offerings, two of which I've profiled below. Premium users can click  here to view the screen as well as its output.  

 Loomis Sayles Global Bond (LSGLX)
Like the Templeton fund, this offering's managers have made room for the debt of countries with better growth prospects and healthier finances than is the case in most developed economies. But they haven't moved away from developed-markets debt completely: Although the portfolio is underweight in debt from developed markets relative to the Barclays Capital Global Aggregate Bond Index, such bonds still consume the bulk of the portfolio. As with the better-known  Loomis Sayles Bond (LSBRX), this offering boasts a highly experienced management team that plies a bargain-hunting approach to bond buying. Volatility has been above-average, but the fund's fundamentals are solid. Note that the institutional share class made it through our screen, but a retail share class with a higher expense ratio (LSGLX) is available for a $2,500 minimum initial investment. Another option is Managers Global Bond (MGGBX), which the Loomis Sayles team also manages, but the fund's expenses are slightly higher.

 T. Rowe Price International Bond (RPIBX) 
This fund is quite different from the Loomis Sayles and Templeton funds, clearly illustrating what a big tent the global bond category is. In contrast with Templeton and Loomis, which have downplayed developed-markets bonds to varying degrees, this fund's main emphasis remains on bonds issued by foreign governments in developed markets. That focus on government issues limits its participation in market environments when credit-sensitive bonds fare best, and the fund's developed-markets emphasis also weds it to the fortunes of some weak economies. That said, manager Ian Kelson is an experienced hand who's attuned to limiting downside volatility. For investors who know what they're getting, it's a reasonable choice.

A version of this article originally appeared on September 21, 2011.