Earlier this month I wrote about the upcoming launch of two foreign bond index funds from Vanguard—the firm’s first step into the market for international fixed-income products. Foreign bond funds are nothing new these days, although the proposed Vanguard funds are a bit out of the ordinary because the portfolios will hedge foreign exchange risk. Vanguard’s reasoning is that forex hedging dampens volatility, which is true. But as I noted, volatility per se isn’t a problem in the context of a broadly diversified multi-asset class strategy. In fact, volatility can be quite helpful in that case. Although I mentioned this point briefly, the issue deserves more attention vis-a-vis rebalancing.

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European shares slip on euro zone recession worries
Reuters | Feb 22
The euro zone’s service sector shrank unexpectedly this month, reviving fears that the economy risks sinking into recession, a business survey showed. Markit’s Eurozone Services Purchasing Managers’ Index (PMI) fell to 49.4 from January’s 50.4, missing even the lowest forecast in a Reuters poll. Strategists said several issues remained unresolved after the Greek bailout deal. “There are still some big questions: does Greece have enough money even now after the second bailout? Can they generate the growth required?” asked Henk Potts, equity strategist at Barclays Wealth, though he noted other factors would limit the downside for equities. “In general terms, there has been a more positive feel to markets since the start of the year. The euro zone crisis has been helped by recent measures. The U.S. (economy) is gaining momentum.”

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