NEW YORK (TheStreet) -- Is your international bond mutual fund cooking with Greece?
It may be hard to tell if Greece isn't listed among the top 10 countries or is consolidated under the banner of "Europe." Not all funds post their complete holdings on the Internet and, even if they do, you should know that Greek government bonds may be listed as "Hellenic Republic."
The euro-zone's finance ministers are fully engaged in jawboning Greece to reduce public spending and raise taxes to narrow its projected budget deficit to address the debt crisis. The Greek government hasn't asked for a bailout. However, European Union ministers stand ready to take unprecedented and unspecified actions if the crisis gets worse.
The international bond fund most exposed to Greek government debt, at 5.4% of total assets, is the
Touchstone International Fixed Income Fund
. The fund invests in a portfolio of non-U.S. fixed-income securities with a weighted average maturity of 9.6 years, with only Germany, France, Belgium and the U.K. in higher concentrations than Greece.
Augustus Asset Managers, the manager of the fund, chooses securities by starting with macroeconomic factors including fiscal and monetary policies before selecting holdings. The firm may need to revisit its models. The year-end commentary from the Touchstone fund cited underperformance due to "country selection" from being overweight in the euro zone and the "purchase of Greek bonds in the early stages of spread-widening."
A rebound by Greece would benefit Touchstone. However, investors who expect the worst may want to steer clear of this fund.
There are international bond funds rated "buy" or "hold" without Greek holdings, including
Delaware Pooled -- International Fixed Income Portfolio
Western Asset Non-U.S. Opportunity Bond Portfolio
Northern Global Fixed Income Fund
One international bond fund anticipated the trouble in Greece and positioned its portfolio to benefit from a potential default in the country's debt. The
Eaton Vance International Income Fund
uses sovereign credit default swaps to create short positions effectively equal to 4.6% of total assets. The fund also bets against the Philippines, Turkey, Malaysia, Thailand, South Africa and Lebanon.
The Eaton Vance International Income Fund favors bond holdings of Germany, France, the Czech Republic, the Netherlands and Belgium. While the fund made the right call on Greece, the extensive use of derivatives, subject to speculative trading, substantially increases risks.
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-- Reported by Kevin Baker in Jupiter, Fla.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.