Hedged GBP Bonds

g_senthil_mm

Hi All,

Any thoughts on the difference between GBP Bonds and Hedged GBP Bonds.

Consider the following two funds


1) Franklin Templeton Global Bond A Dist GBP H1 (Hedged) - The performance of this bond over the past 1 yr is 18.51%

2) Franklin Templeton Global Bond A Distribution GBP - The performance of this bond over the past 1 yr is 8.41%.

Eventhough the portfolio is identical in both of these funds, I would like to know how hedging helped in getting superior performance in Franklin Templeton Global Bond A Dist GBP H1 (Hedged). Going forward, is it a wise option to invest in hedged funds than normal ones.

Thanks.


Regards
Senthil

gozomark

I'm guessing what is hedged is the currency - the £ is up around 10% in the last year, so the figures make sense. Is it worth hedging going forward ? That depends on whether you think £ will go up or down...

purch

Yes, Gozo is spot on.

The Fund is 'hedged' back into Sterling, as it is a UK Fund.

Whether you want to be hedged would depend on;

1. The currencies of the Bonds the Fund holds
and
2. Your views on these currencies against GBP over the next few years.

It should be noted that although it is easy to think that GBP has depreciated over the past 12 months, in reality it has only fallen against a few currencies, and has actually risen against the USD.

gozomark

purch wrote: »

It should be noted that although it is easy to think that GBP has depreciated over the past 12 months, in reality it has only fallen against a few currencies, and has actually risen against the USD.

....and against the Euro and the Yen, which means GBP is the strongest major currency in the world in 2009.

turbobob

What if you have no views on the other currencies against GBP? Would it be fair to say the hedged version of the fund mitigates the risk of adverse currency movements, but will also cancel out the benefit of favourable ones?

gozomark

turbobob wrote: »

Would it be fair to say the hedged version of the fund mitigates the risk of adverse currency movements, but will also cancel out the benefit of favourable ones?

yes - its a hedge, not options