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4 Questions to Ask Before Adding International Bonds to Your Portfolio

For a small category, the world-bond group features a confusing array of choices.

Christine Benz 15.09.2014

Investors are giving their bond portfolios a foreign flavor, judging by Morningstar's recent fund flow data.

Traditional mutual funds in the world-bond group have garnered nearly $7 billion in new investor dollars over the past year, even as funds in the intermediate-term bond group have seen $37 billion flow out the door.

But even as investors have been attracted to the world-bond category, it's easily one of the trickiest to navigate. It's compact--with fewer than 100 distinct funds--but it's full of offerings with disparate strategies. Foreign-currency exposure is a key differentiator, but funds also vary in their approaches to market maturity, interest-rate risk, and sector choices (government-issued versus corporate-issued bonds), among other factors. And of course there are passively managed products--both index funds and ETFs--as well as active.

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About Author

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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