Mr. Moore also said that when investing internationally, he and his co-manager, Michael Plage, favor developed countries like France and Germany. They are financially sound, he said, yet their economies and interest rates don’t necessarily move in sync with those of the United States.
Another crucial difference between indexed funds and actively managed ones is cost. As a rule, index funds are cheaper. The mutual fund version of Vanguard’s international index offering, for example, has an expense ratio of 0.11 percent, while the Hartford fund has one of 0.7 percent.
Active managers in many sectors don’t, on average, outperform their passive competitors. But international bond investing has proved an exception.
Over the last 10 years, the actively managed world bond funds tracked by Morningstar have returned an annualized average of 1.9 percent, while their indexed peers have returned an average of 1.1 percent.
“Bond managers can color outside the lines in a way that can systematically add value,” said Ben Johnson, director of global E.T.F. research at Morningstar. “Take the Bloomberg Aggregate — if I’m benchmarked to that index, I’m not restricted to that universe. I can add a little more credit risk by, say, dipping down into high-yield bonds and picking up some returns.”
When currencies shift in value
While American investors buy their funds using dollars, managers of international bond funds can adjust risk in search of returns with bets on currencies. Some actively managed funds opt to hedge away the effect of the rise and fall of currencies — as broad international index funds tend to do — while others try to exploit these movements, Mr. Johnson said.
“Often the price movement and volatility of an international bond fund is attributable just to foreign exchange rates,” Mr. Johnson said. “That can dominate everything else, like inflation expectations or credit exposures.”
