Government bonds from developed non-U.S. countries declined in U.S. dollar terms. Many high-quality government bond markets outside the U.S. performed well in local currency terms, but a stronger dollar versus most major developed market currencies offset gains from bond price appreciation. In December, the European Central Bank (ECB) announced that it would cut its deposit rate and extend its asset purchase program by six months, but investors had been expecting the central bank to be even more aggressive in expanding its monetary accommodation. Late in the quarter, the Bank of Japan made changes to its quantitative easing program, boosting prices of Japanese government bonds. Although the performance of individual currencies of developing countries varied widely, emerging market currencies as a whole declined modestly against the U.S. dollar.
The International Bond Fund returned −0.72% in the quarter compared with −1.26% for the Barclays Global Aggregate ex USD Bond Index and −0.36% for the Lipper International Income Funds Average. For the 12 months ended December 31, 2015, the fund returned −5.70% versus −6.02% for the Barclays Global Aggregate ex USD Bond Index and −5.31% for the Lipper International Income Funds Average. The fund's average annual total returns were −5.70%, −1.01%, and 2.70% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.83% as of its fiscal year ended December 31, 2014.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The International Bond Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
We added to our exposure sovereign bonds from core developed markets, including the eurozone, the UK, Canada, and Australia, in anticipation of heightened volatility that would fuel demand for lower-risk government debt. In particular, we believe that eurozone sovereigns were unfairly punished following the December ECB meeting because the central bank's policies are still accommodative enough to support that market. We eliminated positions in some locally denominated emerging markets bonds, including Brazil and South Africa, to reduce risk. Similarly, we trimmed the fund's exposure to the Mexican peso and closed overweight positions in the Polish zloty and Turkish lira. The portfolio was underweight the euro, although we implemented a currency option position to partially hedge the risk of the euro appreciating.
We anticipate a continuation of the general trends of late 2015, including elevated volatility created by monetary policy divergence, questions about China's ability to manage its economic slowdown, and concerns about the implications of sharply lower commodity prices. Poor liquidity in many fixed income sectors will likely also contribute to the volatility, which can also generate dislocations that provide investment opportunities. We anticipate that this environment will also create opportunities for relative value trading between markets at different points in their interest rate cycles.