Hungry for Yield
Investors plowed $2.6 billion into global bond funds in the week ended Mar. 3, the biggest one-week haul in more than a decade, according to EPFR Global. And they pulled $30 billion out of money market funds. With the federal funds rate in a range of 0% to 0.25% for nearly 15 months, most money market funds now yield less than 0.1%. "Holding cash is a prohibitive strategy," said Tim Brunne, a Munich-based credit strategist at UniCredit. In contrast, the Barclays Capital Global Aggregate Bond Index has returned 9% since the Federal Reserve last lowered rates, in December 2008. Morningstar's favorite world bond offerings include Pimco's unhedged Foreign Bond Fund as well as the dollar-hedged Pimco Foreign Bond, which has lower exposure to currency fluctuations. Morningstar analyst Miriam Sjoblom explains that unhedged bond funds "offer a lot of diversification away from U.S. markets, but they come with a lot of volatility." Over the past year, the hedged Pimco fund returned 23%, and the unhedged version gained 33%.