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"Looking to control risk? US defined contribution (DC) plans should consider incorporating currency-hedged global bonds into their core menus and target-date funds (TDFs).Hedged global bonds can serve as a low-volatility anchor to windward against equity market volatility. And they have historically done a better job of meeting this “core bond” objective than US bonds.
How so? Over the past 20 years, the return of a hedged global bond portfolio as represented by the Barclays Global Aggregate Bond Index (hedged to US dollars) matched that of a US-only portfolio as represented by the Barclays US Aggregate—but with lower volatility. As a result, the risk-adjusted return—or Sharpe ratio—of the hedged global portfolio was higher. For the full period, hedged global bonds delivered a Sharpe ratio of 1.0, compared with US bonds at 0.8 (Display)."
"Looking to control risk? US defined contribution (DC) plans should consider incorporating currency-hedged global bonds into their core menus and target-date funds (TDFs).Hedged global bonds can serve as a low-volatility anchor to windward against equity market volatility. And they have historically done a better job of meeting this “core bond” objective than US bonds.
How so? Over the past 20 years, the return of a hedged global bond portfolio as represented by the Barclays Global Aggregate Bond Index (hedged to US dollars) matched that of a US-only portfolio as represented by the Barclays US Aggregate—but with lower volatility. As a result, the risk-adjusted return—or Sharpe ratio—of the hedged global portfolio was higher. For the full period, hedged global bonds delivered a Sharpe ratio of 1.0, compared with US bonds at 0.8 (Display)."
[text] Why Global Bonds Need to be a Part of Your Diversified Portfolio | AB
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