Rebalancing equity and bond holding

Bimbly

MK62 said:

......non-Sterling international bonds are often currency hedged to Sterling for UK investors.........as you say, a supposed "safer" asset wouldn't be all that safe if it involved potentially significant currency exchange risk...

None of the fund fact sheets say they are hedged, so I assume they're not. Is that a false assumption?

The only international bond fund I am offered in this pension is not hedged (at least, it doesn't say so in the fact sheet) - Av MyM BlackRock Overseas Bond Index Tracker - and I've always steered away from them. I don't think now would be a good time to change tack, although I still wonder what the fund managers are thinking.

MK62

It's not necessarily a false assumption......though over the years I've found it best not to assume anything where investments are concerned.
I was of course speaking generally, and not about any specific fund, when I said inernational bond funds are often hedged (esp investment grade).....though that may not mean always......in this case you'd have to do a bit more investigating if interested in investing in that fund.....

[Deleted User]

Some exposure to bonds in other currencies can be a good diversifier which dampens volatility.  In particular USD is a “safe haven” currency which jumps every time there is a crisis. 

Vanguard does hedge foreign bonds, but there is a cost to it. 

[Deleted User]

For at least 10 years I have heard that the interest rates are too low, that there will be inflation and that bonds will produce a negative return. I have ignored all that and the returns have been great.  

Situation has changed though.  Now that the coupon is noticeably less than CPI, I am revising my IPS (investment policy statement).  Its not the bible. Its designed to adapt to circumstances.  Maths is against long term bonds.  I am not going to bet against maths.

Now... bonds can be negatively correlated to equities which makes them a great asset class. I still have a screening criterion which says “expected long term returns should be above inflation”.  So, I still have what I bought before but I am not buying any more long term bonds  from countries with below zero rate.

Thrugelmir

Bimbly said:

MK62 said:

......non-Sterling international bonds are often currency hedged to Sterling for UK investors.........as you say, a supposed "safer" asset wouldn't be all that safe if it involved potentially significant currency exchange risk...

None of the fund fact sheets say they are hedged, so I assume they're not. Is that a false assumption?

The only international bond fund I am offered in this pension is not hedged (at least, it doesn't say so in the fact sheet) - Av MyM BlackRock Overseas Bond Index Tracker - and I've always steered away from them. I don't think now would be a good time to change tack, although I still wonder what the fund managers are thinking.

Hedging involves cost. Potentially excessive given the returns on offer. Comes back to that word ~ diversification.  Some winners, some losers but whatever happens there's a positive outcome in the overall portfolio.