Which are the best global bond ETF's

The Bloomberg Barclays Global Aggregate index, for example, has a 40% weighting to the US, where serving the national debt is a political bargaining chip. The index’s next three largest allocations are to Japan, Germany and France, where yields on government bonds of less than five years are negative.

You get the picture; equities indices feature the largest companies (think Apple which is more than 2% of the 1,170-strong MSCI World Index) while bond yardsticks are bloated by the biggest debtors.

This appears not to bother fund buyers, however. Over the past year a net £8.6 billion has gone into global bond ETFs worldwide, according to data provider TrackInsight.

Flows into actively managed global bond funds in the UK have been positive too, with the sector attracting a net £2.3 billion over the past year, but active managers must be wondering why they aren’t taking much more of the money being allocated to the sector.

Part of the reason is inevitably their performance. Over the past three years, the average active global bond manager has failed to deliver positive risk-adjusted returns. The manager information ratio, a measure of the returns they are able to deliver over the benchmark for the risk they take on, is negative across the sector, with a ratio of -0.184 on an equal weighted basis.

A reading of 1 would indicate an active manager had delivered one unit of outperformance for every unit of active risk taken on, while a reading of -1 would show one unit of underperformance for each unit of risk.

Moreover, the average investor in the sector has undershot even that: the funds with negative risk-adjusted returns for the period represent 57%.

So for those who do take the passive route in global bonds, what are the options?

Vanguard’s Global Bond Index

iShares Overseas Government Bond Index

iShares Global Government Bond Ucits ETF (IGLO)

db x-trackers Global Government Bond Ucits ETF (XG7S)

db x-trackers Barclays Global Aggregate Bond Ucits ETF (XBGG)

A smarter choice:

ETFS Lombard Odier Global Government Bond Fundamental GO Ucits ETF (CORG).

Rather than weighting its index by the amount of debt issued by a country, this Lombard Odier methodology allocates according to a combination of an issuer’s current indebtedness, its revenues and its social and political stability.

Source: Citywire

Junior Trader Stefan Panteleev

Original Post: Does active beat passive for global bonds? We have the numbers

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