Bonds choice for an European expat

For residents of the United Arab Emirates.
Post Reply
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Bonds choice for an European expat

Post by brianflanagan »

Hi guys,
I'm a french expat living in Dubai. I've opened an account with Internaxx.

I''m now looking at my Bonds allocation for my portfolio.
I would like to limit the costs (management fees, US or UK Taxes ...).

I've read that the advice is to have Total Bond Market.
I've also read that short term bonds were to prefer, but the plan is a long term investment.

Please see the ETF Bonds I have seen with Internaxx that should be of interest :
BND : Vanguard Total US Bond Market (in USD)
BNDX : Vanguard Total International Bond Market (in USD)
SAAA : iShares Global AAA-AA Govt Bd ETF (but in GBP ... I would have preferred EUR or USD)
IBGS : iShares € Govt Bond 1-3yr ETF EUR Dist (in EUR) - recommended by Andrew Hallam in his book

Would you have any suggestion or recommendation ? Any other Bond to suggest ?
How can I understand the performance of a Bond ? I thought it was supposed to be set at the beginning but in Morningstar, this is evoluting.
So I don't understand how to pick up the right Bond.

Thank you for your help !
User avatar
BeBH65
Posts: 1763
Joined: Sat Jul 04, 2015 7:28 am

Re: Bonds choice for an European expat

Post by BeBH65 »

Hello Brian,

Some of the funds that you list are us-domiciled funds, this might not what you want to as non-resident-alien in the US. See also /Nonresident_alien_taxation

What will be role of bonds in your portfolio?
On this site many consider bonds for protection. What do you consider "your" currency in which you want ot protect your investment: eur or usd?

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Re: Bonds choice for an European expat

Post by brianflanagan »

Hi,

Thanks for your reply.

You are right about the Bonds domiciled in the US.
I've just understood the impacts in another post in this forum .

So definitely I will avoid US-domiciled Bonds.

With Internaxx, i have access to different accounts in different currencies (such as Eur and USD).
I still don't know if I will retire in Europe. I will probably spend the most of my time and money in Europe. But, I might spend some time in low cost destinations as well to reduce the costs. And these destinations might be linked with USD.
That's why I was thinking that I could have a part of my portfolio in USD on my USD account. Why not the Bonds then ? (Not US-domiciled of course)
Is it a good option ?

On my portfolio I already have VWRL (Vanguard World in Eur).

That's right, the bonds part would be for "protection ".
But if there are interesting Bonds with good returns, that's even better, don't you think so ?

Which Bonds would you suggest ?

ThAnk you very much !
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Bonds choice for an European expat

Post by Valuethinker »

brianflanagan wrote: Mon Sep 25, 2017 2:29 pm Hi,

Thanks for your reply.

You are right about the Bonds domiciled in the US.
I've just understood the impacts in another post in this forum .

So definitely I will avoid US-domiciled Bonds.

With Internaxx, i have access to different accounts in different currencies (such as Eur and USD).
I still don't know if I will retire in Europe. I will probably spend the most of my time and money in Europe. But, I might spend some time in low cost destinations as well to reduce the costs. And these destinations might be linked with USD.
That's why I was thinking that I could have a part of my portfolio in USD on my USD account. Why not the Bonds then ? (Not US-domiciled of course)
Is it a good option ?

On my portfolio I already have VWRL (Vanguard World in Eur).

That's right, the bonds part would be for "protection ".
But if there are interesting Bonds with good returns, that's even better, don't you think so ?

Which Bonds would you suggest ?

ThAnk you very much !

With bonds, higher performance means higher risk, almost always.

There's credit risk. In a downturn, lower credit rating bonds such as corporate bonds or junk bonds are hit worse than Investment Grade government bonds.

There's also interest rate risk (duration risk) which all bonds have. Roughly speaking the duration of a bond fund is its interest rate risk, +1% in interest rates x duration = price fall in per cent. If bonds have done well in the past, it's usually because of falls in interest rates-- interest rates have been falling since their all time peak in 1980-81. However if interest rates go back up again (they are at historic lows in most countries) then bonds will get hit.

So if you want to take risks on bonds hoping for higher return you buy lower credit quality and/ or longer duration bond funds.

For safety, you want short maturities (duration is related to maturity but has to be calculated for each bond) such as 1-5 years, for example. And high credit quality: Investment Grade government bonds, developed markets.

For maximum safety you want bond funds which hedge back into their currency of reporting-- usually says Hedged in the name of the fund. Otherwise you might hold USD bonds, and the USD falls against the EUR say.

I would go with IBGS and maybe an equivalent USD bond ETF (split 50/50) and be done with it. Not let it worry me too much.
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Bonds choice for an European expat

Post by Mors »

Valuethinker said what it had to be said nicely. I would suggest a global aggregate investment grade bond fund hedged in euro as your sole bond fund for now. Maybe coupled with a eurozone aggregate investment grade bond fund, if you prefer diversifing in a physical etf.
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Re: Bonds choice for an European expat

Post by brianflanagan »

Thank you very much for your reply guys !

I understand that Bonds are more to have a safety part in your portfolio. A minimum of return should still be expected. Otherwise, we should keep the money in cash ;-)
Is there a way to know the returns I can expect from a bond ? IBGS for example ?
I could not find it clearly anywhere.

@Valuethinker : Thanks for your reply. Would you have any Bonds to recommend ? could you share names and the returns expected please ?

Thank you for your help
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Bonds choice for an European expat

Post by Mors »

brianflanagan wrote: Mon Oct 02, 2017 3:39 am Thank you very much for your reply guys !

I understand that Bonds are more to have a safety part in your portfolio. A minimum of return should still be expected. Otherwise, we should keep the money in cash ;-)
Is there a way to know the returns I can expect from a bond ? IBGS for example ?
I could not find it clearly anywhere.

@Valuethinker : Thanks for your reply. Would you have any Bonds to recommend ? could you share names and the returns expected please ?

Thank you for your help
In us funds you can check the sec yield for an idea of what to expect.

If you find an insured savings account or cd with 1% interest rate or higher, you can use it for the fixed income part of the portfolio.
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Re: Bonds choice for an European expat

Post by brianflanagan »

As indicated, my first choice would be in EUR and in an european market place to avoid any tax/fee from the US government.

Thanks a lot guys !
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Bonds choice for an European expat

Post by Mors »

Here are the decently sized euro-hedged global bond funds.

https://www.justetf.com/de-en/find-etf. ... sg=more100

You will probably want either an aggregate or a goverment bond fund. You could also go for a combaination of goverment and corporate bond funds, allocating in favor of goverment bond fund (2/3 or 70/30 for example).

Check that some of them are synthetic. It may or may not bother you, they are considered safe enough though. Also check that some of them are distributing, you may wish to avoid them.

EDIT: Just checked that you prefer euro bond funds.
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Re: Bonds choice for an European expat

Post by brianflanagan »

@Mors : Thanks for your reply.
I looked at the first one and I don't understand the returns I can expect :
https://www.justetf.com/de-en/etf-profi ... ab=returns

It's indicated :
Returns in 1 year in 2017 : 2.81%
Returns in period of 1 Y : - 0.02%

How much should I expect ?

What is the correct tracker name ? IBCQ or CRPH ? I can't see the differences

Thank you very much.
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Bonds choice for an European expat

Post by Mors »

brianflanagan wrote: Mon Oct 02, 2017 7:35 am @Mors : Thanks for your reply.
I looked at the first one and I don't understand the returns I can expect :
https://www.justetf.com/de-en/etf-profi ... ab=returns

It's indicated :
Returns in 1 year in 2017 : 2.81%
Returns in period of 1 Y : - 0.02%

How much should I expect ?

What is the correct tracker name ? IBCQ or CRPH ? I can't see the differences

Thank you very much.
You are welcome. I do not believe that you can have a good estimation about what to expect by just looking the past returns, other than that for the next few months it is not very likely to have very different outcome than what you see for the last few months.

Other than that, 2,81% is the return in 2017, and -0,02% the compounding return you would have if you had bought it one year before. Check the heat map. At november 2016, the etf took a dip or over 2%, which is the largest dip in its history, so if you would be unlucky to buy just before the dip you need time to earn back the lost capital. Hence the difference in percentages.

Also check that this is corporate bond etf, if you like it you need to accompany it with a goverment bond etf. It is also a distributing etf, check your taxing situation.
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Re: Bonds choice for an European expat

Post by brianflanagan »

Thank you @Mors.

The view provided by justetf website is good and very helpful.

I noticed there that IBGS bonds do not provide as much returns and dividends as the other bond IBCQ or CRPH.
So I'm disapointed. I should do a mix I suppose to have Corporate and Government Bonds. Is that right ?

Could you indicate me the difference between IBCQ and CRPH Bond ? Which one should I choose ?

Thanks a lot !
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Bonds choice for an European expat

Post by Mors »

brianflanagan wrote: Tue Oct 03, 2017 4:08 am Thank you @Mors.

The view provided by justetf website is good and very helpful.

I noticed there that IBGS bonds do not provide as much returns and dividends as the other bond IBCQ or CRPH.
So I'm disapointed. I should do a mix I suppose to have Corporate and Government Bonds. Is that right ?

Could you indicate me the difference between IBCQ and CRPH Bond ? Which one should I choose ?

Thanks a lot !
You are welcome.

You are increasing your risk by opting for corporate bonds, but as long as the funds use investment grade bonds it is totally acceptable. Given that euro bonds are relatively correlated, diversifying away from them will probably raise your risk-adjusted returns. An allocation of 70/30 to 60/40 goverment bonds / corporate bonds is often used.

I see no difference, probably they just use different name in different stock exchanges.
Topic Author
brianflanagan
Posts: 11
Joined: Sun Sep 24, 2017 11:30 am

Re: Bonds choice for an European expat

Post by brianflanagan »

Hi,

I think you are right.
The difference is with the stock markets and also with the liquidity.
Which in fact are quite big differences.

Unfortunately, it is very difficult to find easily precise information on these 2 data.
On the link to Morningstar that my broker provide, it's not clear.

Do you know where (which web site) I could find easily the stock market and the liquidity when I am interested by an ETF ?

Thank you very much !
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Bonds choice for an European expat

Post by Mors »

You are welcome. I use justetf.com, but it may not be ideal fof these uses.
Post Reply