Advertisement
Index Funds

Invest in This Index Fund for Bonds From Exotic Locales

Vanguard scores with a fund that owns long-term government debt from emerging markets.

Conventional wisdom holds that indexing works best in heavily researched categories, such as large-cap U.S. stocks, in which it’s hard for fund managers to gain an edge. By contrast, actively run funds should, in theory, shine in more-obscure classes, such as emerging-markets bonds. Vanguard Emerging Markets Government Bond Index Fund (VGAVX) has defied this commonly held view, outpacing 93% of emerging-markets debt funds since its launch in 2013.

The fund tracks an index of dollar-denominated bonds issued by governments and government-linked firms (think Brazil’s Petrobras). It has benefited from holding issues with long maturities and low credit ratings. The portfolio’s average duration (a measure of interest-rate sensitivity) is 6.5 years, compared with a category average of 5.8. And nearly 40% of its holdings are bonds rated below single-B, compared with 9% for its typical rival. Because the fund invests only in dollar-based bonds, it didn’t suffer as much as funds that held bonds denominated in foreign currencies when the buck surged in 2014 and early 2015.

Advertisement - Article continues below

But don’t underestimate the risk. Over the past three years, the Vanguard fund was more than twice as volatile as the main U.S. bond index. Rising interest rates and growing fears about the health of emerging nations could torpedo results. And if the dollar weakens, the fund, which yields 4.1%, could turn into a laggard.

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

21 Dividend Increases During the COVID Crisis
dividend stocks

21 Dividend Increases During the COVID Crisis

These 21 stocks were doling out dividend increases as the coronavirus crisis accelerated – and as many stocks were cutting or outright suspending thei…
July 3, 2020
The Awkward Relationship Between Markets and the Economy
investing

The Awkward Relationship Between Markets and the Economy

Why is the stock market doing so well during such a rough time? Well, it’s because the stock market and the economy are not the same thing.
July 3, 2020
Closing Bell 7/2/20: Double Dose of Jobs Data Drives Stocks Higher
Markets

Closing Bell 7/2/20: Double Dose of Jobs Data Drives Stocks Higher

The Nasdaq closed the holiday-shortened week at all-time highs after Thursday's data dump showed progress on the American employment front.
July 2, 2020
Is the Stock Market Closed for the Fourth of July?
Markets

Is the Stock Market Closed for the Fourth of July?

Independence Day falls on a Saturday in 2020. As a result, the bond and stock markets are closed for a long holiday weekend. Here's a look at the mark…
July 2, 2020