Top 5 International Bond Mutual Funds (March 2011)

The U.S. bond market continues to hold great attraction for investors, but it has figured only infrequently among top-performing markets worldwide in the recent past. Adding foreign bonds to a portfolio enhances prospects of exposure to the best-performing markets abroad. Foreign bonds also help to diversify currency exposure and act as a hedge against the dollar. Mutual funds are a convenient and relatively safer method of giving a diversified portfolio the desired international fixed-income exposure.

Below we will share with you 5 top rated international bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all international bond funds, then click here.

Federated International High Income A (IHIAX) seeks current income with a secondary objective of capital growth. The fund invests in emerging market debt securities with different maturity periods. It may purchase a significant amount of securities rated below investment grade and invest in derivatives. The international bond mutual fund has a three year annualized return of 8.69%.

The international bond mutual fund has a minimum initial investment of $1,500 and an expense ratio of 1.24% compared to a category average of 1.32%.

SEI International Emerging Markets Debt A (SITEX) invests a large share of its assets in fixed income emerging market securities. It focuses on dollar-denominated debt securities issued by governments and companies in emerging markets. Not more than 25% of its assets may be invested in a single country. The international bond mutual fund has a three year annualized return of 8.2%.

As of December 2010, this international bond mutual fund held 418 issues, with 3.73% of its total assets invested in Russian Federation 7.5%.

GMO International Bond III (GMIBX) seeks to outperform its benchmark, the J.P. Morgan Non-U.S. Government Bond index. The majority of the fund’s assets are utilized to invest in bonds, either directly or through other GMO funds or derivatives. The international bond mutual fund returned 12.93% in the last one year period.

Thomas Cooper is the fund manager and has managed this international bond mutual fund since 1993.

JPMorgan Emerging Markets Debt (JEMDX) invests the majority of its assets in debt securities issued in emerging markets. These securities may be dollar-denominated or may be issued in foreign currencies. The fund is non-diversified and may also purchase securities rated below investment grade. The international bond mutual fund has a ten year annualized return of 9.62%.

The international bond mutual fund has an expense ratio of 1.32% compared to a category average of 1.32%.

T. Rowe Price Emerging Markets Bond (PREMX) seeks to provide a high level of current income and invests heavily in emerging market debt securities. These could be both government securities and those issued by corporate entities. It is non-diversified and may invest in bonds with relatively low ratings. The international bond mutual fund returned 12.04% in the last one year period.

Michael J. Conelius is the fund manager and has managed this international bond mutual fund since 1995.

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