Vice president Craig Stobo says fund is managed by a team based in Sydney whch uses various in-house investment specialists for research and market information. The currency management is done by BT in Auckland.

At the start of the year the fund was fully unhedged (most NZ-based international bond funds are usually fully hedged), due to concerns over the currency.

This proved to be a correct call and was responsible for nearly two thirds of the fund's return during the year.

Stobo says the was completely unhedged until May, then the manager starting rebuilding the position until the it was fully hedged in December.

With the fund BT aims to retain an ability to move quickly and it limits its investment universe to more liquid government bonds, bank bills or other international issues in New Zealand's major trading partners.

On the other hand the BNZ International Bond Trust is more conservative. The fund is managed out of London by Credit Suisse Asset Management and is invested in a portfolio of government stocks and corporate bonds from around the world which have at least an 'AA-' credit rating. As such the trust's investments are concentrated in low risk, highly liquid securities.

To minimise the trust's vulnerability to changes in the value of overseas currency relative to the New Zealand dollar, the trust has at least 80 per cent of its investments hedged back into New Zealand dollars.

BNZ chief investment officer Anthony Thyne says the best calls during the year have been in the Japanese market, and some of the peripheral European countries such as Belgium and Holland.

He says global bonds have given New Zealand investors spectacular returns over recent years as interest rates have fallen. He believes they will continue to be attractive (although with lower returns) than New Zealand as the local market will struggle to outperform.

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