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4 International Bond ETFs Win Despite Acute December Selloffs

Sanghamitra Saha

Global markets went into a tailspin in December with chances that Wall Street will see the worst December for stocks since 1931. The return of global growth worries, the continuation of the Fed policy tightening in 2019, trade dispute with China, a U.S. federal government shutdown and President Trump's increasingly unfriendly stance toward the Fed chairman caused troubles in the market.

On a month-to-date basis (as of Dec 24, 2018), S&P 500-based ETF SPY retreated about 15.6%, Dow Jones-based ETF DIA lost 15.5%, Nasdaq 100-based QQQ shed around 16.5% and all-world ETF iShares MSCI ACWI ETF ACWI is off 12.7% (read: 5 Long/Short ETFs Handily Beating S&P 500 in 2018).

Government shutdown has been the latest worry with Trump insisting that the gridlock will continue until his demand for funds to build a wall on the US-Mexico border is approved. Also, there were news that Treasury Secretary Steven Mnuchin called top executives from the six largest U.S. banks to discuss liquidity. All these developments kept investors edgy and weighed on the global markets.

Global investor sought safety in international bonds. As the demand for bonds rose, prices increased and yields declined. Japan’s benchmark 10-year bond yield slipped to zero percent for the first time since September 2017, while the safe-haven asset yen rose for the eighth day, marking its longest streak of rise since March 2017. Also, German 10-year Bund yield is near a six-month low while French yields are around the lowest levels since August.

Against such a tumultuous backdrop, some international bond ETFs were in the green in December. Below we highlight a few.

Winning ETFs

iShares International Treasury Bond ETF (IGOV) – Up 1.3%

The underlying S&P International Sovereign Ex-U.S. Bond Index comprises non-U.S. developed market government bonds. Japan has the highest exposure with about 23.27% focus, followed by France (7.7%), Italy (7.1%) and United Kingdom (5%). Effective duration and Average Maturity of the fund are 8.39 years and 10.17 years, respectively. The expense ratio of the fund is 0.35% (see all Developed Market Bond ETFs here).

SPDR Bloomberg Barclays International Treasury Bond ETF (BWX) – Up 1.1%

The underlying Bloomberg Barclays Global Treasury Ex-US Capped Index is designed to track the fixed-rate local currency sovereign debt of investment grade countries outside the United States. Japan (23.19%), France (5.85%) and United Kingdom (5.74%) are the top three country ETF holdings. The fund charges 35 bps in fees.

Xtrackers Barclays International Treasury Bond Hedge ETF (IGVT) – Up 1.1%

The underlying Barclays Global Aggregate Treasury ex USD issuer Diversified Bond Index tracks investment-grade sovereign debt that is publicly issued by developed and emerging market governments in their native currencies, while mitigating exposure to fluctuations between the U.S. dollar and foreign currencies. This is also heavy on Japan (24.57%) while France (7.08%) and Britain (6.7%) form the top three positions. The fund charges 25 bps in fees.

iShares Core International Aggregate Bond ETF (IAGG) – Up 0.7%

The underlying Bloomberg Barclays Global Aggregate ex USD 10% Issuer Capped (Hedged) Index measures the performance of the global investment-grade bond market. France (12.83%), Japan (12.70%), Germany (10.99%) and United Kingdom (10.41%) have double-digit weights. The fund charges 9 bps in fees.

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SPDR-DJ IND AVG (DIA): ETF Research Reports
ISHARS-CORE IAB (IAGG): ETF Research Reports
ISHRS-MSCI ACWI (ACWI): ETF Research Reports
SPDR-BBC INT TR (BWX): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
DEUT-XT TRS HDG (IGVT): ETF Research Reports
ISHARS-IN TB (IGOV): ETF Research Reports
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