There’s an area of the market that many investors are overlooking: foreign government bonds, according to BlackRock’s Tom Becker. While they may venture into global equities, most investors stay focused within the United States when it comes to fixed income, he said. As portfolio manager on the iShares Global Government Bond USD Hedged Active ETF (GGOV), Becker is making the case for spreading allocations out to governments around the globe. The fund has a 2.56% 30-day SEC yield and a 0.39% net expense ratio. That diversification is important, he said. A U.S.-only portfolio is very correlated with the nation’s business cycle, inflation and U.S. Treasury issuance, Becker noted. Plus, any issues or shocks in one country can be offset by another country that is doing well, he added. For instance, in 2022 was the worst year for U.S. bonds as the Federal Reserve raised interest rates to combat inflation, he said. “That more diversified portfolio is going to give you more ballast and more diversification across different interest rate cycles. You’re compounding the higher yield with lower volatility,” Becker said. GGOV mountain 2025-06-25 iShares Global Government Bond USD Hedged Active ETF since its June 25 launch. While the U.S. government shutdown does not have any direct impact on the fund’s strategy, it shows why investors may want to be diversified, he said. Becker said the halt was “a symptom of rising uncertainty around the funding/spending/issuance path for the U.S. Treasury in the coming years, which over the medium term increases the portfolio diversification benefits of broadening fixed-income allocations across global sovereigns.” The exchange-traded fund, which launched in June, still has its largest holdings in U.S. Treasurys, which make up 33% of the fund , as of Oct. 10. Getting higher yield, lower volatility To help get a boost in yield and dampen volatility, GGOV is hedged to remove currency risk, Becker said. “If we didn’t remove the currency risk, we would move with the dollar/yen or the dollar/euro exchange rate,” Becker explained. “We hedge that back and what that then gives us is a structural exposure to a diversified set of issuers without currency risk and with a yield uplift — and the yield uplift comes from the currency hedge most of the time.” For instance, if he is buying a German Bund that yields 2.5%, he’ll sell U.S. dollars to buy euros and then buy the bond, he said. “I hedge that long Euro, short U.S. dollar back. So I basically sell euros and buy dollars back at the front end of the curve,” he added. “I basically undo the currency exposure.” When doing that, Becker gets the rate differential between the European Central Bank and the Fed. If the ECB is at 2% and the Fed is at 4%, he’ll get a 2% yield uplift, he said. “Now I have exposure to a 2.5% yielding 10-year bond, with an exposure to a rolling set of 2% interest-rate differentials at the front end,” he explained. “So, in aggregate, that portfolio is…
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