I am a quant analyst by training and sometimes I come across a paper that simply makes me salivate. Not because it is full of recipes of good food but because it does something very simple, yet very informative. Such as the paper of Mikhail Samonov and Nonna Sorokina
I will need to read the paper although it may not answer the question that is puzzling me. What is the effect of having diversified bonds (Bloomberg aggregate) versus domestic government (UK gilts in my case). I probably need to find the right paper.
It's a tricky one because long-term history is not available for global investment grade bonds. The papers I have seen all show that when it comes to government and investment grade bonds, investing in international bonds increases risk but does not hedge and does not increase returns. So, in general, it is best to stay in your home currency for these assets, unless you hedge currency risks. Foreign bonds with FX hedging do increase diversification benefits a little.
In addition to diversification, the other main point to be considered are transaction costs/fund charges. Picking a low cost diversified tracker fund/ETF and holding them forever is a great way to increase your net worth for the lay investor.
I will need to read the paper although it may not answer the question that is puzzling me. What is the effect of having diversified bonds (Bloomberg aggregate) versus domestic government (UK gilts in my case). I probably need to find the right paper.
It's a tricky one because long-term history is not available for global investment grade bonds. The papers I have seen all show that when it comes to government and investment grade bonds, investing in international bonds increases risk but does not hedge and does not increase returns. So, in general, it is best to stay in your home currency for these assets, unless you hedge currency risks. Foreign bonds with FX hedging do increase diversification benefits a little.
Good read for a Friday.
In addition to diversification, the other main point to be considered are transaction costs/fund charges. Picking a low cost diversified tracker fund/ETF and holding them forever is a great way to increase your net worth for the lay investor.