investing abroad and dollar valuation

Here's a question. I've been looking at some broad international
stock/bond funds. If the dollar continues to decline, does that
push up their value?

I read an interview with Sir John Templeton Jr. and he said his
favorite method of investing was to buy Canadian strips. It
was a government bond guranteed to go up in value and also went
up value more because the dollar kept going down in price.

Are there any mutual funds that specialize in foreign government
bonds?

_Jess

Re: investing abroad and dollar valuation

Jessica wrote:
> Here's a question. I've been looking at some broad international
> stock/bond funds. If the dollar continues to decline, does that
> push up their value?
>
> I read an interview with Sir John Templeton Jr. and he said his
> favorite method of investing was to buy Canadian strips. It
> was a government bond guranteed to go up in value and also went
> up value more because the dollar kept going down in price.
>
> Are there any mutual funds that specialize in foreign government
> bonds?
>
> _Jess

Do you realise Sir John is 92 years old, at least? By some formulae he
should have 92% in bonds and only 8% in stocks. Is he quite the role
model the rest of us youngsters should be following?

Re: investing abroad and dollar valuation

David Wilkinson <> wrote:

> Do you realise Sir John is 92 years old, at least? By some formulae he
> should have 92% in bonds and only 8% in stocks. Is he quite the role
> model the rest of us youngsters should be following?

LOL! Ok, but he made a 25% gain on them. That's not bad, is it?
I'm not basing my portfolio on what John Templeton says.

My question is this, how does a declining dollar help increase
the value of a foreign fund? If I buy stock in a Chinese
oil company, and the yen keeps sky rocketing and the dollar
goes down, doesn't that mean that my stake in the company is less?

_Jess

Re: investing abroad and dollar valuation

"Jessica" <> wrote
> Are there any mutual funds that specialize in foreign government
> bonds?

You can set to screen for International
Bond funds, and many come up.

Same for the screener at

Re: investing abroad and dollar valuation

Jessica wrote:
> David Wilkinson <> wrote:
>
>
>>Do you realise Sir John is 92 years old, at least? By some formulae he
>>should have 92% in bonds and only 8% in stocks. Is he quite the role
>>model the rest of us youngsters should be following?
>
>
> LOL! Ok, but he made a 25% gain on them. That's not bad, is it?
> I'm not basing my portfolio on what John Templeton says.
>
> My question is this, how does a declining dollar help increase
> the value of a foreign fund? If I buy stock in a Chinese
> oil company, and the yen keeps sky rocketing and the dollar
> goes down, doesn't that mean that my stake in the company is less?
>
> _Jess

Hmmm... The yen is the Japanese currency so it has no direct relation to
Chinese oil company share values. The Chinese use the Yuan or Remnimbi,
whichever it is, possibly two names for the same thing.

The Yuan has been locked at a fixed exchange rate to the USD until
recently so there was no currency variation in the value of Chinese
shares. However, under great pressure from the USA the Chinese
reluctantly revalued the Yuan upwards by 2% relative to the USD a little
while ago. This means Chinese shares would have increased in value by 2%
in dollars.

More generally, suppose you buy some European shares valued at 10
Euro/share and the exchange rate is 0.8 Euro/USD. These would cost you
10/0.8 = 12.50 USD/share.

Then, if the share value stays at 10 Euro while the dollar falls against
the Euro to a rate of 0.7 Euro/USD, then the share will be worth 10/0.7
= 14.29 USD/share. You could sell the shares and make 1.79 USD/share
gain, purely due to the falling dollar exchange rate.

So, if you think the dollar will fall, it may be a good thing to buy
foreign shares. However if you get it wrong and the dollar goes up then
you lose instead. This is adding currency risk to the normal stock and
market risk from owning US stocks or funds.

Alternatively, if you thought the Dollar would fall against the Euro you
could just buy some Euros, wait for the Dollar to fall and then sell
them back for more dollars than you bought them for. This is what
foreign currency dealers do. However this is a zero sum game, or a
negative sum one after fees, so if someone wins then someone else loses.
You might be the one who sold Euros for dollars when the dollar was high
and then bought them back again at a loss when the dollar had fallen.
Unless you are George Soros the foreign exchange market is as tricky as
any other to make money from.

Re: investing abroad and dollar valuation

Jessica <> wrote:

> I read an interview with Sir John Templeton Jr. and he said his
> favorite method of investing was to buy Canadian strips. It
> was a government bond guranteed to go up in value and also went
> up value more because the dollar kept going down in price.

Good luck doing that. That's probably a smart way to invest against
the dollar but most foreign governments only allow you to buy their
bonds if you have citizenship there.

I google'd "buying canadian strips" and only came up with the
article on John Templeton you must have read!

I can only find corporate bond funds or stock funds for abroad.
I might be overlooking something obvious here.

> Are there any mutual funds that specialize in foreign government
> bonds?

Yeah, lots.

Here's the dealio. You buy a Canadian stock on the US market at
$10 a share. The US to Canadian dollar let's say is $1 to $1.10.
If the stock stays constant, and the canadian dollar gains $.40
you've made $.40 profit in the currency exchange alone for each
$10 share you own.

I think the dollar is going down for a while. Oil keeps rising and
expanding the trade deficit wich drives the dollar down further. As
long as our deficits keep expanding, the dollar will keep declining.

ps, don't point me to any news articles about the deficit shrinking,
those are generally wrong. The uptick in revenues this year was
predicted by the CBO some time ago and long term, we're still growing
the deficit.

-Mike

Re: investing abroad and dollar valuation

Jessica wrote:

> Here's a question. I've been looking at some broad international
> stock/bond funds. If the dollar continues to decline, does that
> push up their value?

Some funds employ hedging strategies to compensate for currency
fluctuations; others just "pass thru" the full value of the currency
fluctuation. Read the prospectus for each fund to see how they deal
with that.


> Are there any mutual funds that specialize in foreign government
> bonds?

There are a number of international bond funds. But as I said, some of
them hedge against currency fluctuations. Read the prospectus.

One that is interesting is PSAFX, which invests only in bonds of
countries with relatively stable currencies, like Switzerland. It did
pretty well until the dollar recovered its value in recent months.


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.

Re: investing abroad and dollar valuation

"Steven L." <> wrote in message
news:tu3Me.5464$
> Jessica wrote:
>
> > Here's a question. I've been looking at some broad international
> > stock/bond funds. If the dollar continues to decline, does that
> > push up their value?
>
> Some funds employ hedging strategies to compensate for currency
> fluctuations; others just "pass thru" the full value of the currency
> fluctuation. Read the prospectus for each fund to see how they deal
> with that.
>
>
> > Are there any mutual funds that specialize in foreign government
> > bonds?
>
> There are a number of international bond funds. But as I said, some of
> them hedge against currency fluctuations. Read the prospectus.

Absolutely, always read the prospectus. That will help because some funds
invest strictly internationally, while others invest in both the U.S. and
internationally - Morningstar groups all these funds together as "World
Bond" funds.

You can instead use Lipper's classification, "International Income" to find
funds that specialize in international (only) bonds. It shows 21 distinct
funds.


It also helps to read the (semi)annual report, or look at the portfolio
holdings as reported by Morningstar (or some other source), to see what the
funds actually hold - or at least held as of the time of the report.

Hedging is more difficult to determine, even from the prospectus (because
most funds allow hedging, even if they almost never use it). Some are
obvious though (PIMCO Foreign Bond, Unhedged - PFBDX, is unhedged, while
PIMCO Foreign Bond, US-Dollar Hedged - PFODX, is hedged). We may know about
specific funds from reading reports (Morningstar, S&P, etc.) - try asking.

> One that is interesting is PSAFX, which invests only in bonds of
> countries with relatively stable currencies, like Switzerland. It did
> pretty well until the dollar recovered its value in recent months.

I've always had problems stomaching the expenses of this fund, especially
since it appears to be almost all (70%) in cash:


But it is an intresting fund, that invests in (gold) stocks as well as bonds
(Morningstar calls it a world allocation fund, i.e. an international
"hybrid" (balanced) fund).

--
Mark Freeland

Re: investing abroad and dollar valuation

Mark Freeland wrote:

> "Steven L." <> wrote in message
> news:tu3Me.5464$
>
>>One that is interesting is PSAFX, which invests only in bonds of
>>countries with relatively stable currencies, like Switzerland. It did
>>pretty well until the dollar recovered its value in recent months.
>
>
> I've always had problems stomaching the expenses of this fund, especially
> since it appears to be almost all (70%) in cash:
>
>
> But it is an intresting fund, that invests in (gold) stocks as well as bonds
> (Morningstar calls it a world allocation fund, i.e. an international
> "hybrid" (balanced) fund).

Years ago, Van Eck used to offer another bonds-and-gold fund, that did
asset allocation between gold and U.S. bonds. The theory being that
bonds would do well in low inflation, and gold would do well in high
inflation. I don't know what happened to the fund, or to Van Eck
itself. It wouldn't have done well after 1994, because inflation was so
low that gold never did well (until the last couple of years).


--
Steven D. Litvintchouk
Email:

Remove the NOSPAM before replying to me.

Re: investing abroad and dollar valuation

"Steven L." <> wrote

> Years ago, Van Eck used to offer another bonds-and-gold fund, that did
> asset allocation between gold and U.S. bonds. The theory being that bonds
> would do well in low inflation, and gold would do well in high inflation.
> I don't know what happened to the fund, or to Van Eck itself. It wouldn't
> have done well after 1994, because inflation was so low that gold never
> did well (until the last couple of years).

You brought this fund to mind: