Skip to Content
Fund Spy

For World-Bond Funds, Currencies Are No Sideshow

Three approaches to currency management drive different risk/reward profiles.

Mentioned: , ,

Solid long-term performance and diversification from U.S. bond and equity markets have made the world-bond fund category one of the fastest-growing categories that Morningstar tracks. Because of the wide variety of approaches (unhedged versus U.S.-dollar-hedged, global versus non-U.S., broad-based versus single-sector), funds within the Morningstar Category have a large range of risk exposures. 

It makes most sense to divvy up the category by various approaches to currency management rather than by credit, regional, or sector focus, as currency movements have the most significant impact on risk/return profiles. World-bond funds tend to follow one of three currency-management approaches: unhedged, tactically hedged, and U.S.-dollar-hedged. (In this article, tactically hedged funds will be referred to as "tactical" and U.S.-dollar-hedged funds as "hedged.")

Karin Anderson has a position in the following securities mentioned above: TPINX. Find out about Morningstar’s editorial policies.