EAFE Bond

EAFE bond mutual funds and ETFs invest the majority of their assets... EAFE bond mutual funds and ETFs invest the majority of their assets in various bonds issued by governments and corporations in the so-called EAFE economies (Europe, Australasia, and the Far East). EAFE was coined by Morgan Stanley. There are 21 nations, and all are developed markets. These countries are characterized by legal systems that don’t tend to be as stable as developing markets, and productivity levels and living standards that are rising but not yet at the level of emerging markets. These funds can be actively or passively managed and may seek to track or outperform a particular benchmark. They may hedge foreign currency risk, or elect to leave themselves exposed to fluctuations in other nations’ currencies. Depending on their mandate, these funds may focus on investment-grade bonds, high-yield (a.k.a. junk bonds), or a mix of credit quality. In addition, these funds may have a mandate to invest in a particular region or continent. Japan is the largest bond issuer of any EAFE nation, with total government debt of over US$9.0 trillion as of March 2023. Investors typically purchase these funds in order to achieve a mix of capital growth and income for their portfolios. They also are attracted to the conservative, diversified nature of many of these funds, because an investor can get exposure to 21 Developed Market economies. These funds can appeal to investors with a range of risk tolerances. A fund that exclusively owns investment-grade government bonds will tend to be lower risk than a high-yield fund that invests in junk debt from risky corporations, for instance. Like all fixed-income investments, these funds can come with duration risk, which is the potential that rising interest rates reduce the value of bonds a portfolio already owns. On the flip side, falling interest rates can lead to a rise in the price of bonds. Last Updated: 04/19/2024 View more View less

EAFE bond mutual funds and ETFs invest the majority of their assets in various bonds issued by governments and corporations in the so-called EAFE economies (Europe, Australasia, and the Far East). EAFE was... EAFE bond mutual funds and ETFs invest the majority of their assets in various bonds issued by governments and corporations in the so-called EAFE economies (Europe, Australasia, and the Far East). EAFE was coined by Morgan Stanley. There are 21 nations, and all are developed markets. These countries are characterized by legal systems that don’t tend to be as stable as developing markets, and productivity levels and living standards that are rising but not yet at the level of emerging markets. These funds can be actively or passively managed and may seek to track or outperform a particular benchmark. They may hedge foreign currency risk, or elect to leave themselves exposed to fluctuations in other nations’ currencies. Depending on their mandate, these funds may focus on investment-grade bonds, high-yield (a.k.a. junk bonds), or a mix of credit quality. In addition, these funds may have a mandate to invest in a particular region or continent. Japan is the largest bond issuer of any EAFE nation, with total government debt of over US$9.0 trillion as of March 2023. Investors typically purchase these funds in order to achieve a mix of capital growth and income for their portfolios. They also are attracted to the conservative, diversified nature of many of these funds, because an investor can get exposure to 21 Developed Market economies. These funds can appeal to investors with a range of risk tolerances. A fund that exclusively owns investment-grade government bonds will tend to be lower risk than a high-yield fund that invests in junk debt from risky corporations, for instance. Like all fixed-income investments, these funds can come with duration risk, which is the potential that rising interest rates reduce the value of bonds a portfolio already owns. On the flip side, falling interest rates can lead to a rise in the price of bonds. Last Updated: 04/19/2024 View more View less