 Fund Profile: AllianceBernstein Global Bond A
by Ann C. Logue
Interest rates in the United States are low -- 10-year treasury notes are yielding about 3.75% and probably aren't even beating real inflation. (The good folks at the Bureau of Labor Statistics aren't filling up their tanks at a gas station near me.) That's one reason that income investors are looking outside the United States, where at least some of the bonds are generating better returns even before considering the effects of the dismal dollar.
The AllianceBernstein Global Bond Fund is a five-star choice for generating current income, and the fund is also managed to preserve capital. (In general, bond prices go down when interest rates go up; a fund managed purely for income might show more total return volatility over time. Whether that's good or bad depends on your needs.) It's set up to be flexible about asset allocation. It can buy both corporate and government bonds anywhere in the world, of any maturity; up to 25% of those bonds can be in high-yield (read: low credit or junk) securities.
A look at where the fund's $1.45 billion in assets is placed shows how that flexibility is put to work. As of March 31, the single-largest holding is a Japanese government bond (1.70% interest, maturing in Sept. 2017), at 5.89% of assets. Next is a U.S. Freddie Mac agency security, paying 5.13% and also maturing in 2017, at 4.37% of assets. The third-largest holding is a Polish government bond at 5% interest and maturing in Oct. 2013, at 3.12% of the fund. Like all global funds, the AllianceBernstein Global Bond Fund invests in the United States as well as the rest of the world. The fund's managers like what they see here; 47.98% of assets are in American bonds, followed by Japan at 9.53% and Mexico at 6.32%. About 79% of the assets are denominated in the U.S. dollar. This insulates the fund from exchange-rate risk. Given that the dollar has to be close to a bottom, the exposure could work well in the fund's favor.
This fund was founded as the AllianceBernstein Global Government Income Trust. The name and investment strategy were changed on Nov. 5, 2007. It's still heavily weighted toward bonds issued by sovereign nations that make up 41.72% of total assets. The heavy weighting is slowly being diversified with bonds issued by Fannie Mae and Freddie Mac and industrial issuers such as petroleum companies, metals and mining concerns, and utilities. The fund has a medium-to-long-term tilt, with the average bond maturing 9.83 years from now.
Over the years, the AllianceBernstein Global Bond Fund has been a strong performer. Morningstar gives it five stars for the three-, five-, and 10-year periods. For the past five years, the fund has returned an annual average of 7.55%, while the average fund in the World Bond objective returned an annual average of 5.45% and the Lehman Brothers Aggregate Bond index had an average total return of 4.14%. For the year-to-date, the fund is 1.70%, although its average Morningstar peer is up 3.17% and the benchmark index is up 2.04%. Most of the difference is due to currency exposure.
AllianceBernstein funds are sold through brokers at a 4.25% sales charge. The minimum investment is $2,500 and the first breakpoint is at $100,000. The Global Bond Fund also has a 12b-1 fee of 0.30% and a total expense ratio of 1.05%. That's below the average of 1.23% for the World Bond category and may explain some of the great long-term performance. Interest investors may choose B class shares, sold with no load, a contingent deferred sales charge that starts at 3% the first year, and a 1% 12b-1 fee.
This fund is a great way for investors looking for a diversified fixed-income investment. An investor who is mostly in equities but who wants to add a little bond exposure might like this because it invests in just about anything, anywhere -- as long as the potential for return is in place. The dollar exposure may be hurting relative performance a bit right now, but that should protect investors when the dollar finally strengthens against the world's major currencies.
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