The Market for Mutual Fund Managers
When the U.S. stock market is a mess and the dollar is even worse, investors start looking to alternatives, and this fund combines two of them: investment-grade bonds and international currencies. The Dreyfus Premier International Bond Fund's one-two punch has generated good performance for the year to date: up 8.23% (as of Oct. 19) compared to 5.80% for the S&P 500, 6.62% for the Lehman Brothers Aggregate Global Bond Index and -7.43% for the U.S. dollar relative to the euro. It can help investors generate income, diversify portfolio risk and take advantage of the decline in the value of the dollar.
The fund invests in high-credit international bonds, mostly those issued by foreign governments but including some from banks, utilities and other investment-grade borrowers. Its two largest holdings—other than cash—are euro-denominated bonds issued by Finland and the Netherlands. The fund also owns bonds issued by Japan, Brazil, South Africa and Sweden, among other nations.
The cash holdings are not trivial. Given that the U.S. dollar has been falling all year, an ordinary passbook account in another currency can be a low-risk moneymaker. It doesn't take a lot of extra performance for an international fund manager to post good profits when the dollar is weak. But what happens if it turns around, even slightly? A United States mutual fund, no matter where it invests, reports its returns in dollars, so a key decision for an international fund manager is whether to retain exposure to exchange rates or to hedge against fluctuations. The Dreyfus Premier International Bond Fund's prospectus gives the fund manager the right to determine whether or not to hedge the currency exposure. Right now, he appears to be hedging very little, and that's good. Had he been hedging, the benefit of the dollar's decline would have disappeared. The dollar can't stay at such crazy low levels forever, though, and when it turns, the fund manager needs to be able to hedge that in order to protect returns.
The fund invests in high-credit international bonds, mostly those issued by foreign governments but including some from banks, utilities and other investment-grade borrowers. Its two largest holdings—other than cash—are euro-denominated bonds issued by Finland and the Netherlands. The fund also owns bonds issued by Japan, Brazil, South Africa and Sweden, among other nations.
The cash holdings are not trivial. Given that the U.S. dollar has been falling all year, an ordinary passbook account in another currency can be a low-risk moneymaker. It doesn't take a lot of extra performance for an international fund manager to post good profits when the dollar is weak. But what happens if it turns around, even slightly? A United States mutual fund, no matter where it invests, reports its returns in dollars, so a key decision for an international fund manager is whether to retain exposure to exchange rates or to hedge against fluctuations. The Dreyfus Premier International Bond Fund's prospectus gives the fund manager the right to determine whether or not to hedge the currency exposure. Right now, he appears to be hedging very little, and that's good. Had he been hedging, the benefit of the dollar's decline would have disappeared. The dollar can't stay at such crazy low levels forever, though, and when it turns, the fund manager needs to be able to hedge that in order to protect returns.
For access to the full article, you must be a registered member - it's FREE.
Already a member? Please log in below
Not Registered?
Register today and enjoy all that SmallCapInvestor.com has to offer, including:
- Daily small cap stock profiles.
- Intra-day coverage of Russell 2000 companies.
- Research and insights from our analysts.
- Special reports.
