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Dollar Strength: How it affects your portfolio (Part 2)

We continue to urge caution on foreign bond funds. For much of the past decade, a weaker dollar was the foreign bond markets best friend as appreciating foreign currencies led to strong returns. However, with prospects for continued dollar strength, foreign bond market returns could be restrained.9.29.14

A second dynamic diminishing the appeal of this sector are low yields overseas. As shown in the adjacent chart, yields on government bonds are meaningfully lower overseas than in the U.S. Low yields mean low return potential, and make the asset class even more at risk of loss due to currency volatility.

Importantly, our caution primarily applies to funds that do not hedge their currency exposure. Many foreign bond funds fully or partially hedge their currency risk.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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