The first port of call for investors seeking to include bond funds in a balanced portfolio of investments should be sterling bond funds. However, global bond funds can act as a diversifier for both growth- and income-focused investors holding other asset groups.
Exchange rate movements can have a major influence on returns from global bond funds, and that was certainly true in 2016, when sterling's fall in value against other major currencies boosted returns to UK investors.
The other major influences on returns are global interest rates, inflationary trends and balance sheet strength of the issuing countries, or in the case of funds that invest in corporate bonds, the company itself.
It is very difficult for private investors to buy bonds denominated in foreign currencies. So it makes sense to invest via a fund that spreads the risk between currencies and bond types, including government, corporate and inflation-linked issues.
Our six Rated Funds provide plenty of scope in these respects. Additionally, two funds that focus on debt issued by developing countries are included in the emerging markets asset group.