The fixed income corner of the ETF industry has experienced tremendous growth in recent years, as investors have become increasingly comfortable with achieving bond exposure through the exchange-traded structure. In 2010 more than $26 billion flowed into bond ETFs, following a year that saw more than $42 billion in net inflows. During the first six months of 2011 bond ETF inflows topped $16 billion.
Despite these impressive growth figures, it seems that the potential for future expansion of the bond ETF arena is significant. Although bond ETFs have expanded considerably, the bulk of inflows has been to products focusing exclusively or primarily on debt of U.S. issuers. Most investors have gradually eased their “home country bias” on the equity side of their portfolios, embracing international stocks as a vital component of long-term strategies. But when it comes to bonds, many investors still limit their holdings to U.S. securities.
International Flavor
Expanding the geographic scope can be a major improvement to long-term portfolios, especially in the current environment. International bonds generally offer opportunities to enhance current returns relative to comparable U.S. debt, and have the added bonus of diversifying exposure away from the U.S. government and U.S. corporations. Moreover, debt denominated in local currencies provides a dollar hedge that could be beneficial if the greenback encounters the weakness many predict it will.
For investors looking to diversify beyond U.S. borders, there are more than a dozen ETFs offering international exposure. Below we profile each and every international bond ETF, from emerging markets to Italian Treasuries to TIPS.
International Treasuries
There are a handful of products in the International Government Bonds ETFdb Category that offer exposure to debt issued by governments outside the U.S. (many of these products focus primarily on developed markets in Europe and Asia):
- SPDR Barclays International Treasury Bond
