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Why You Should Consider Expanding Your Fixed Income Exposure

In the early 1990s, many investors added non-U.S. equities to their U.S. equity holdings to increase the opportunity to generate returns and improve the diversification in their portfolios. Similar to the equity market, the bond market has undergone considerable growth and maturation in the last 15 years. Yet many investors continue to hold a U.S. core-bond fund as their only bond allocation.

With the GuideStone Global Bond Fund (Fund), investors have an opportunity to try to improve both diversification and anticipated returns by adding a diversified, global strategy to broaden the market sectors to which they have exposure. The addition of the Fund is particularly appealing today given its potential to preserve capital in the current rising interest rate environment.

Increased Diversification

The expanded reach of the Fund grants investors access to a greater number of bond sectors, such as developed non-U.S., emerging markets and high yield. These additional sectors bring exposure to different economies, interest rate cycles, currencies and a much deeper list of issuers — exposures investors cannot access with solely a core-bond fund. The Fund provides its exposure through investments in:

  • Government bonds
  • Corporate bonds, including high yield bonds
  • Mortgages/Asset-backed securities
  • Emerging market bonds

Multiple Sources of Return

Bond investors have benefited from a strong tail wind fueled by falling interest rates over the last three decades. With rates coming off historic lows and widely held expectations for higher rates, they are now pressed to find other sources of return.

The Fund delivers cost-effective access to both investment grade and high yield corporate bonds outside the U.S., as well as emerging market debt. These sectors typically provide higher income levels than investment grade U.S. bonds; thus their performance streams are less reliant on stable or declining interest rates. Additionally, the Fund includes exposures to foreign currencies, which offers additional opportunities to diversify and potentially boost returns within a portfolio.

Benefits of Active Management

We believe the value derived from active management can also help offset the trend of rising interest rates. Fixed income benchmarks are typically less efficient and less investable than equity benchmarks. Additionally, in our opinion, the negotiated nature of bond trading favors a skilled, active manager. As a result of these inefficiencies, the median active managers of separately managed core and global strategies have generated higher returns than have the Bloomberg Barclays U.S. Aggregate Bond Index and the Bloomberg Barclays Global Aggregate Index, respectively, and have done so with comparable levels of risk. This trend holds true over 1-year, 3-year, 5-year and 10-year periods through 2016.

Source: Zephyr StyleADVISOR
Benchmark: Bloomberg Barclays Global Aggregate
Median: Managers in the Morningstar World Bond category

Reducing the reliance on a core-bond strategy dramatically broadens the breadth of opportunities to add value through active management. The Fund joins the skill sets of multiple managers — each with a different area of specialization. It also combines the benefits of bottom-up, fundamental research which seeks value opportunities across markets, securities and sectors with top-down macroeconomic analysis. Thus, the benefits of sector rotation and security selection across the global opportunity set are complemented by duration and yield curve positioning. Each of these areas contributes to what we view to be the value added from active management and may help to mitigate the negative effects of today's low yield and rising rate environment. This approach dramatically expands the number of active positions relative to the benchmark which can possibly generate returns while aiding in the management of risks in the Fund.

Summary

Bond markets around the world have grown so significantly over the last 15 years that the Barclays Capital U.S. Aggregate Bond Index now comprises just 35 percent of the global bond market. Investors now have the ability to access exposure to many more sectors and a much wider opportunity set for active management than is available from a U.S. core-bond fund alone. As investors have evolved their equity allocations to be more global in nature, we feel the time has come for bond allocations to follow suit. The addition of the GuideStone Global Bond Fund to a core-bond strategy will attempt to improve diversification while also seeking to increase the ability of the bond portfolio to withstand a rising interest rate environment.

Performance

 As of 3-31-17 Three Month Year to Date One Year Three Year (Annualized) Five Year (Annualized) Ten Year (Annualized) Since Inception 12-29-06 (Annualized)
Fund 3.00% 3.99% 10.05% 2.43% 3.59% 5.24% 5.29%
Benchmark 2.50% 2.59% 4.78% 2.43% 3.17% 5.32% 5.37%

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Performance data current to the most recent month-end and complete calendar year performance my be obtained at GuideStoneFunds.com. The investment return of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance would have been lower without fee waivers and reimbursements in effect. Year 2006 annual performance began 12/29/2006.

Annual Operating Expenses

Gross Expense Ratio Net Expense Ratio*
0.87% 0.85%

*When the gross expense ratio and the net expense ratio are different, it reflects fee waivers and expense reimbursements for the Fund. Some expense limitation arrangements are voluntary and may end at any time. Others are contractual and—unless renewed—will end on a date specified in the agreement. Please refer to the prospectus for more information.


There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including potential loss of principal.

Past performance does not guarantee future results. 

One cannot invest directly into an index.

You should carefully consider the investment objectives, risks, charges and expenses of the GuideStone Funds before investing. A prospectus with this and other information about the Funds may be obtained by calling 1-888-GS-FUNDS (1-888-473-8637) or downloading one at GuideStoneFunds.com. It should be read carefully before investing.

GuideStone Funds shares are distributed by Foreside Funds Distributors LLC, not an advisor affiliate.

The Global Bond Fund invests in high yield securities, commonly known as "junk bonds." While offering higher currency yields, these securities generally are considered speculative and are subject to greater risks than higher-rate bonds. Securities of emerging countries may involve additional risks including price volatility, reduced liquidity, currency fluctuation and financial reporting requirements as well as political and economic instability.