Foreign-Currency Exposure Looks More Enticing

For more than a decade through 2024, the US dollar appreciated consistently against most global currencies, but this trend has reversed in 2025 because of several factors.

Even before President Donald Trump’s April announcement of the highest US tariffs in over a century, worries about the duties’ effect on US growth and inflation were rising. Additionally, policymakers continue to kick the nation’s swelling national deficit down the road, making investors skeptical of the US dollar and pressuring its value.

The market’s significant selloff in the days following the president’s initial tariff announcement highlighted how concentrated many portfolios were in US assets because of a stronger US dollar and the US equity market’s impressive outperformance over the years. The selloff also demonstrated the importance of maintaining diversification, not only across equities and fixed income but also across domestic and international assets. The outperformance of US assets has been so strong and persistent that even if you started the past decade with a diversified portfolio, market action may have left you with far less non-US exposure (both assets and currency) than you think. That may be changing, though.

Despite being among the highest-yielding fixed-income peer groups, the global-bond Morningstar Category was among the worst performers from January 2010 through December 2024, with an annualized gain of 1.4%. However, its US dollar category counterpart, global-bond US-dollar-hedged, ranked in the top half of fixed-income categories over that time frame. Its 3.1% annualized gain showed the outsized impact of a strengthening US dollar.

These tides may have turned in 2025, as the global-bond category was the third best-performing fixed-income category for the year to date through October, rising 8.7% annualized. Meanwhile, the global-bond US-dollar-hedged category gained 4.9% and ranked near the bottom of taxable fixed-income categories. It’s too early to declare this a permanent turnaround, but changing sentiment about the US dollar benefits funds with unhedged, non-US fixed-income allocations.

Such allocations come with risks. For example, BrandywineGlobal Global Opportunities Bond GOBIX, which has a Morningstar Medalist Rating of Bronze, relies on top-down macroeconomic and valuation analysis to determine its currency positioning, with non-US-dollar exposure ranging from 50% to 100% of the portfolio.

This is a concentrated portfolio that tilts toward countries with low debt levels, high real yields, and strong or improving fundamentals. These traits have made the fund volatile, but it still has a deep and experienced management team that focuses on sovereign debt and rotates into corporate and securitized debt when their valuations are compelling. It owns a lot of emerging-markets debt and currencies, which helps boost its 5.8% Securities and Exchange Commission yield, the category’s fifth highest. It’s an attractive option for investors seeking diversification from US assets and some extra yield.

Gold-rated Dodge & Cox Global Bond DODLX stands out as a top global-bond fund for its valuation discipline, long-term focus, deep team, and impressive execution. This is a low-turnover approach, but the team is not idle. It will position the portfolio based on its price discipline and market opportunities.

The portfolio has bigger helpings of emerging-markets and corporate debt than its typical category peer, but it is still less aggressive than many in terms of non-US-dollar exposure, which is typically around 20% to 25% of the portfolio. Its 4.7% SEC yield ranks in the category’s top quintile, and its long-term trailing performance rankings are among the group’s best. This remains a great option for investors looking for global-bond exposure.

This article first appeared in the October 2025 issue of Morningstar FundInvestor and has been updated to reflect market changes. Download a complimentary copy of FundInvestor by visiting this website.