The Vanguard Solution And ETF Options
Vanguard’s new fund capturing this market is called the Total International Bond Index Fund. Trading next week as an ETF under the ticker BNDX, it charges 0.20 percent in annual expenses (the fund is already available in various mutual fund share classes). The fund tracks the Barclays Global Aggregated ex-US Float Adjusted RIC Capped Investable Index (USD Hedged), which basically holds all investment-grade corporate and government international bonds outside the U.S.  Its largest weight is in Japan, at 22 percent of the portfolio.

For those looking for broad-based exposure, there is no single alternative in the ETF space. The closest you can come is to piece together the exposure by combining BWX with the SPDR Barlcays International Corporate Bond ETF (NYSEArca: IBND).  The costs would be much higher: BWX charges just 0.50 percent in annual expenses, while IBND charges 0.55 percent in fees. 

Other alternatives include piecemeal solutions from iShares, PowerShares and other firms, but none offer the broad-based exposure the Vanguard product promises.

Summary
Why is this a big deal? 

Consider this: International fixed income is the single largest asset class in the world. It is bigger than U.S. bonds; bigger than U.S. stocks; bigger than international stocks. By Vanguard’s count, fully 35 percent of the world’s total capitalization is invested in international debt.

Vanguard is now saying that effectively all investors deserve to be exposed to this asset class. That’s incredible.

To me, it feels a bit like the equity market felt 20 or 30 years ago, when investors were hugely home-biased in their portfolios. A few decades later, all of us own international stocks.

Am I predicting that in the international bond market overnight? Of course not.

But I am saying this: If the world’s largest index investor thinks most investors should have 20 percent of their fixed-income investments in international bonds, you should consider it too.

And if you don’t, I’m sure some of your competitors will.