What You Should Know About the Templeton Global Bond Fund
The Templeton Global Bond Fund (TPINX) is a popular international mutual fund that seeks current income with capital appreciation and growth. With a five-star Morningstar rating, the fund targets opportunities in currencies, interest rates, and sovereign credit through investments in government bonds and derivative instruments. The goal is to help investors potentially achieve attractive returns while diversifying their portfolio.
In this article, we will look at the bond fund in greater detail and identify some of the key considerations for international investors.
A Brief Overview
The Templeton Global Bond Fund uses a combination of quantitative and qualitative analysis along with on-the-ground research to identify global investment opportunities. The team focuses on conducting in-depth country analysis to identify economic imbalances leading to value opportunities in currencies, interest rates, and sovereign credit, while continually evaluating risk and shifting focus as global economic and credit cycles evolve.
The fund has a minimum investment of $1,000 with approximately $40 billion in assets under management, as of mid-2017. Morningstar classifies the fund’s portfolio as having a limited duration — meaning less interest rate risk than other funds — with low- to medium-quality bonds — which is to be expected with most international bond funds. In terms of risk-adjusted returns, the fund has consistently outperformed its benchmarks with comparable risk.
The following fees apply to investors in the mutual fund:
|Gross Expense Ratio||0.96 percent|
|Net Expense Ratio||0.93 percent|
|Max Initial Sales Charge||4.25 percent|
|12b-1 Fee||0.25 percent|
* As of January 2017 (updated annually).
According to Morningstar, these fees are below average for comparable funds and a modest 23 percent turnover helps reduce ancillary trading costs that can eat into returns. Many global bond exchange-traded funds (ETFs) may offer lower expense ratios — averaging at around just 0.20 percent — but investors don’t have access to the same experienced management team at the helm. Investors should consider these fees, however, when deciding between investments.
Benefits and Risks
The Templeton Global Bond Fund has been around since 1986 with a strong track record when it comes to performance and Morningstar ratings.
The benefits of investing in the fund include:
- Diversification. The fund’s diversified portfolio includes over 150 different positions located around the world. While these positions are always in flux, the fund had 40 percent exposure to the Americas, 25 percent exposure to Asia, 4 percent exposure to Europe, as of mid-2017, with 70 percent invested in fixed income and 30 percent invested in cash.
- Experienced Management. The fund has been managed by Michael Hasenstab since 2001 and backed by a large team of analysts located around the world. This team’s ability to outperform benchmark indexes while keeping risks to an average level set them apart from many other teams in the space.
- Limited Duration. The fund’s duration tends to be limited, which means that the fund may have less interest rate risk than comparable bond funds. This could make it an attractive fixed income investment even as central banks increase interest rates.
The risks of investing in the fund include:
- Fixed-Income Risks. Many fixed-income investments are dependent on interest rates set by central banks. In addition, fixed income tends to be less liquid than equities during times of economic crisis, which could have an adverse effect on the fund.
- Political Risks. Sovereign debt securities carry greater risk than domestic bonds since they are subject to greater political risk. For example, a country may decide not to repay its bonds and default on its debt due to factors outside of their control.
- Interest Rate Risk. Interest rates have been near record lows throughout the developed world following the 2008 financial crisis. Rising interest rates — as has been the case in the United States in 2017 — could decrease the prices of bonds in the fund.
Alternatives to Consider
There are many different global bond mutual funds and ETFs. Morningstar lists over 300 different Global Bond mutual funds, while ETFdb.com lists nearly 20 ETFs that meet similar criteria.
Some popular global bond ETFs include:
- RiverFront Strategic Income Fund (RIGS)
- FlexShares Ready Access Variable Income Fund (RAVI)
- Invesco Global Short Term High Yield Bond Portfolio (PGHY)
- SPDR Barclays International Treasury Bond ETF (BWX)
- iShares International Treasury ETF (IGOV)
Some popular global bond mutual funds include:
- PIMCO Foreign Bond Fund (PFOAX)
- Payden Global Fixed Income Fund (PYGFX)
- Consulting Group International Fixed Income Fund (TIFUX)
- SEI International Fixed Income Fund (SEFIX)
- DFA 5-Yr Global Fixed Income Portfolio (DFGBX)
The Bottom Line
The Templeton Global Bond Fund is one of the most popular international fixed income mutual funds in the world. With a five-star rating from Morningstar and a history of benchmark-beating returns, international investors should carefully consider the fund as a fixed income option for their portfolio. However, they should also be mindful of the expenses associated with the fund and the unique risk factors that impact the asset class.