Where Does Your International Government Bond ETF Really Invest?

by on May 16, 2013 | ETFs Mentioned:

The fixed income corner of the ETF industry has experienced tremendous growth in recent years, as investors have become increasingly comfortable with achieving fixed income exposure through government bond ETFs. While most investors have gradually eased their “home country bias” on the equity side of their portfolios, many have limited their holdings of international government bonds. This quickly expanding niche market can be a strong part of any portfolio, given careful consideration before investing [see 10 Questions About ETFs You've Been Too Afraid To Ask].

JapanWhile these products offer the potential for uncorrelated returns and attractive yields, it is important to take a close look at the portfolio compositions, which sometimes reveal information that investors should pay attention to.

SPDR Barclays Intl Treasury Bond (BWX, A)

This offering from State Street is the largest oldest, and most heavily traded international government bond fund, with over $1.8 billion in total assets under management. Focusing more heavily on mid- to long-term bonds, its dominated by developed European nations with a couple of strong outliers like Canada, Japan and Australia  [Download How To Pick The Right ETF Every Time].

S&P/Citigroup International Treasury Fund (IGOV, A+)

iShares‘ response to BWX in 2009 is a significantly smaller fund holding $431 million in assets, but with a wider range of credit quality investments. Charging only 35 basis points, IGOV is one of the cheapest international bond funds on the market and is even available commission free through Fidelity. The underlying index for this fund is designed to measure the performance of Treasury bonds issued in local currencies by developed market countries excluding the U.S.. Like BWX, these holdings mostly include European countries, but Japan and Canada still have strong parts to play in the fund [see 8% Yield ETFdb Portfolio].

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Disclosure: No positions at time of writing.