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Fixed income is the major concern for retirement investing. Furthermore, fixed income is a risk stabilizer and diversifier for portfolio building. International bonds provide greater diversification as compared to the U.S. only based bonds. With the introduction of foreign treasury bond ETFs, average investors now can invest in a diversified array of international government bonds.

With the U.S. weak dollar policy and relatively good government credits, especially for countries or regions like Germany, Australia and some emerging countries like Brazil, it makes sense to pay attention to international treasury bonds. As a whole, international treasury bond ETFs (represented by Barclay Capital Intl Treasury Bond BWX) have done well, compared with other bond ETFs. For example, BWX is currently ranked higher than U.S. intermediate treasury bond ETF (NYSEARCA:IEF) and other credit bond ETFs (CFT). As of 7/15/2011, BWX has 11.65% 52 week return. Please refer to here for more of fixed income asset classes performance.

The following table shows four international treasury ETFs and their performance.

Description

Symbol

1 Yr

3 Yr

5 Yr

Avg. Volume(K)

1 Yr Sharpe

SPDR Barclays Capital Intl Treasuries

BWX

14.05%

5.27%

NA

179

130.82%

SPDR Barclays Cap S/T Intl Treasuries

BWZ

14.34%

NA

NA

34

194.71%

iShares S&P/Citi Intl Treasury

IGOV

9.47%

NA

NA

14

90.42%

iShares S&P/Citi 1-3 Yr Intl Treasury

ISHG

11.02%

NA

NA

22

110.61%

For information on more ETF performance in different class of assets, please refer to here

As we mentioned in our previous article BWX was the best performer. From the above table, we can see that BWX still maintains its lead in this asset class with the return of 5.27% in the last 3 years. Its liquidity is also reasonable, compared with other ETFs in the table. Investors should also pay attention to the BWZ that has mostly short and intermediate term treasury bonds. Furthermore, its expense ratio of 0.35% is 30% lower than BWX's 0.5%. With the possible inflation outlook, it makes sense to scale down the bond duration to short/intermediate term instead of BWX's intermediate/long term focus.

The BWX net asset is of $1.58 billion as of 30-06-2011. The average maturity in is 8.43 years with a dividend yield of 1%, the total number of holding to date is 269. The fund has a net cash amounting to 36.3 million. Please find below the table of the fund top holdings

As of07/13/2011

Name

Weight

Market Value

JAPAN-264(10 YEAR ISSUE) 1.5 09/20/2014

4.29%

67,158,866.46

JAPAN- 43(20 YEAR ISSUE) 2.9 09/20/2019

2.15%

33,584,578.92

JAPAN-95 (20 YEAR ISSUE) 2.3 06/20/2027

1.95%

30,539,205.58

JAPAN- 42(20 YEAR ISSUE) 2.6 03/20/2019

1.14%

17,823,743.97

KINGDOM OF DENMARK 5 11/15/2013

1.00%

15,693,335.60

JAPAN -26(30 YEAR ISSUE) 2.4 03/20/2037

0.91%

14,196,085.67

JAPAN-284(10 YEAR ISSUE) 1.7 12/20/2016

0.91%

14,184,192.64

TAIWAN GOVT RECONSTRUCT 1.375 09/09/2019

0.89%

13,917,751.49

BELGIUM KINGDOM 5 09/28/2012

0.85%

13,359,797.04

BUONI POLIENNALI DEL TES 4.25 09/01/2019

0.85%

13,291,4

It is notable that top holdings of BWX are concentrated on Japan's long term bonds. Though as a major creditor and positive current account, Japan has been buffeted by the recent earthquakes, nuclear disasters and other economic slowdown. Furthermore, since international bonds have much higher volatility due to currency fluctuation, investors should definitely invest in them using a systematic portfolio strategy.

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: International Treasury Bonds: Fixed Income for Dollar Hedge