In article <1113945542.284764.143290[at]l41g2000cwc.googlegroups.com> ,
joe.weinstein[at]gmail.com says...
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OK.....Siegle notes that it is unhedged in The Future for Investors.
Someone's wrong. Better check the fund managers......

Mike

In article <1113945542.284764.143290[at]l41g2000cwc.googlegroups.com> ,
joe.weinstein[at]gmail.com says...
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"Generally,the fund will purchase only bonds denominated in foreign
currencies.Because the fund is designed for U.S.investors seeking
currency and interest rate diversification, the fund limits its use of
hedging strategies that may minimize the effect of currency
fluctuations. The fund may hedge up to 25% of its total assets into
U.S.dollars when the fund managers consider the dollar to be attractive
relative to foreign currencies."

Mike

I just checked BEGBX, and Yahoo says:
" It may hedge up to 25% of assets into U.S. dollars".
Joe

In article <1113935954.688792.42980[at]f14g2000cwb.googlegroups.com> ,
dumbstruc[at]gmail.com says...
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Especially if they're unhedged. BEGBX is one.

Mike

Foreign bond funds can have good yields and less exposure to Greenspan:
http://news.morningstar.com/fundReturns/FundReturns.html?category=$FOCA$IB

The way I answered this question was to buy euros. We have an account
at Everbank. I am not 100% happy with it, due to very low interest,
but it is beter than holding dollars. We have established a
substantial (for us) euro holding since the fall of Saddam's regime.

I do not feel comfortable with owning foreign stocks, because, in my
opinion, shareholders' interests are not as highly respected in most
other countries.

Euros are a way for us to store cash. I do not consider currency
fluctuations and volatility as contributing to our financial
"risk". Since the US acts like a third world country on a borrowing
spree, I would rather not take the risk of owning too much of its
currency.

i

Paul Michael Brown wrote:

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Based on reading and observation, I think dollar-based returns of EAFE
or other foreign stocks are POSITIVELY, not NEGATIVELY, correlated to
the returns of U.S. stocks, since most volatility in foreign stocks for
U.S. investors is due to volatility in the local-currency returns
rather than exchange rate returns. Here are the total returns in
dollars of the EAFE for the last 4 years, from the Vanguard site for
the VDMIX fund, which seem to confirm my assertion:

2004 20.25%
2003 38.61%
2002 -15.70%
2001 -22.04%

The bad (good) years for U.S. investors in U.S. stocks were also bad
(good) for U.S. investors in foreign stocks.

Not only are foreign stock returns positively correlated with U.S.
stock returns, their correlation tends to go up in bear markets, as
discussed (for example) in the paper cited below.

A positive feature of bonds, especially long-term U.S. Treasuries, is
that their correlation with stocks tend to DECREASE in a financial
crisis. Historically, when stocks have crashed, bonds have risen, in a
flight-to-quality effect.

Are the Gains from International Portfolio Diversification Exaggerated?
The Influence of Downside Risk in Bear Markets
KIRT C. BUTLER
Michigan State University
DOMINGO C. JOAQUIN
Illinois State University - Department of Finance, Insurance and Law
July 9, 2001
EFMA 2002 London Meetings
Abstract:
The fundamental rationale for international portfolio diversification
is that it expands the opportunities for gains from portfolio
diversification beyond those that are available through domestic
securities. However, if international stock market correlations are
higher than normal in bear markets, then international diversification
will fail to yie ld the promised gains just when they are needed most.
We evaluate the extent to which observed correlations to monthly
returns in bear, calm and bull markets are captured by three popular
bivariate distributions: (1) the normal, (2) the restricted GARCH(1,1)
of J. P. Morgan's RiskMetrics, and (3) the Student-t with four degrees
of freedom. Observed correlations during calm and bull markets are
unexceptional compared to these models. In contrast, observed
correlations during bear markets are significantly higher than
predicted. Higher-than-normal correlations during extreme market
downturns result in monthly returns to equal-weighted portfolios of
domestic and international stocks that are, on average, more than two
percent lower than those predicted by the normal distribution. If the
extent of non-normality during bear markets persists over time, then a
U.S. investor allocating assets into foreign markets might want to
allocate more assets into foreign markets with near-normal correlation
profiles and avoid markets with higher-than-normal bear market
co-movements.

Keywords: Bear markets; correlation; downside risk; portfolio
diversification; financial markets; normal, RiskMetrics TM , GARCH,
Student-t

JEL Classifications: G15, G11, C15, C34

Bill Ragsdale <bill[at]good-fortune.cc> wrote:

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How about an EAFE index fund? As the dollar has fallen these funds have
done extremely well. Vanguard's Developed Markets Index (VDMIX), for
example, is up roughly 15 percent for the 12 months ending March 31,
compared to about 6.5 percent for the S&P 500. The annual report issued
October 31, 2004, noted that while the performance of the fund in local
currencies was "middling," when currency effects were factored in "a weak
dollar produced strong returns."

Of course, this isn't a pure play. Unless the companies in the EAFE index
make money in their local currencies there won't be anything to convert
into dollars at a favorable exchange rate. And if the EAFE companies do
poorly *and* the dollar rises you get a double whammy to the down side.

Still, I like the EAFE for about 20 percent of the average investor's
equity position -- both for its performance when the dollar falls, and for
its historical negative correlation to domestic equities.

Bill Ragsdale wrote:

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Why? An intelligent investor who takes some time to learn how futures
markets work should be able to purchase currency futures and
periodically roll them over. It's not difficult. The main risk is that
someone will use the leverage provided by futures to take undue risk,
but that is a matter of self-discipline.

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Some forex brokers have been unscrupulous, but I think RefcoFx.com for
example is reputable. I have a futures account with them and have not
had any problems. Currency quotes are easy to find on the Internet, and
forex brokers make pretty tight markets. Jim Rogers recently wrote a
book on commodity futures for investors. A good recent paper is "The
Tactical and Strategic Value of Commodity Futures" with by Harvey and
Erb, available at http://www.duke.edu/~charvey/research.htm .

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I disagree, and I have cited studies to support my views. Having all of
one's wealth in dollar-denominated assets, especially bonds, is
needlessly risky.

A client of mine asked how to cope with a (possible) dollar decline:
"George Soros predicts a 20% dollar decline ahead. Is there a strategy for
hedging against a US$ crash?"

There are at least three answers which I'll address in order. The article he
emailed me quoted Soros as saying the dollar had declined 40% in two years
against other currencies and he sees another 20% drop ahead.

Level Zero is to do nothing. We live inside a dollar 'bubble.' Domestic
activity is insulated against the dollar's external value shifts, just as
all boats float up an down on the tide. Its value drop can be reflected in
the higher cost of imports. However productivity increases abroad have kept
this effect low. Has the US stock market or economy suffered from the 40%
drop so far? Not that I can see. So, for the simplest response no action is
required. You may see some price inflation but no disaster.

A Level One response would be to own or invest in what the dollar purchases.
As the value of the dollar declines you will automatically own more of
whatever that is and conversely.

Have you noticed the run-up in the price of gold? Gold is priced in dollars
on the international market. Dollar down = gold up. From April, 2003, to mid
2004 the gold price was up 31%. From June, 2001 to mid-2004 up 63%. Roughly
the same change has occurred with oil. Note that over the longer term such
commodities show a dollar price change from inflation and dollar valuation
as well as possible market factors. Another Level One investment would be a
mutual fund holding foreign government debt denominated in the local
currency. It would automatically rise upon a dollar decline but would also
face risk from the relative interest rates and local economies. Fidelity New
Markets Income is NOT suitable as it has 97.7% US Dollar currency exposure

Level Two strategy would include (long) futures contracts on foreign
currencies and the so-called 4X, foreign exchange trading. I certainly
discourage all but the trained, supervised professional from these markets.

Particularly avoid the television promotions on foreign currency trading
classes and software. This is an unregulated market providing liquidity
between banks for international commerce. The hucksters are feeding their
clients to swim with the sharks trading billions of dollars.

My conclusion is the private investor should have major concerns on saving,
domestic investing, long term health care, estate planning, etc. Coping with
international exchange rates should be either off of or very low on your
planning horizon.

Bill Ragsdale