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Bond Portfolio Strategy
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jon3001
Posts: 890 Forumite
I currently have some funds in Invesco Perpetual Corporate Bond held in an ISA. Potentially I’ll be liquidating some or all of these funds within 3 years. Although, if I have enough cash to avoid doing so I’ll instead reinvest it in my retirement portfolio (equities, etc).
Anyway – I wasn’t prepared for the rollercoaster rise this fund has been giving me since Sept/Oct last year. Therefore I’m intending to spread things out a bit more. I want to reduce the overall portfolio volatility while still have a reasonable chance of a return. Here’s my current (somewhat woolly) thinking so far:
40% Corporate Bonds
The basic strategy is to have a portfolio whose component funds are somewhat uncorrelated. If they behave differently to some extent then they should even out each other’s movements somewhat therefore reducing volatility even though individual funds can be volatile.
Any thoughts? Does this approach look sound enough?
Anyway – I wasn’t prepared for the rollercoaster rise this fund has been giving me since Sept/Oct last year. Therefore I’m intending to spread things out a bit more. I want to reduce the overall portfolio volatility while still have a reasonable chance of a return. Here’s my current (somewhat woolly) thinking so far:
40% Corporate Bonds
Has a somewhat riskier spread with weightings towards A/BBB exposure but has a reasonable yield to compensate.
Somewhat more even spread of investment grade bonds (AAA/AA/A/BBB) although the reports indicate it has only recently increased exposure at the A/BBB end. Has done very well in the current economic climate. The different investment strategy should complement the Invesco fund.
20% Stategic Bonds
Technically in the Corporate Bond sector rather than the Strategic Bond sector. However most strategic bonds have a lot of high yield exposure which I’m not looking for. And the few that largely had investment grade exposure didn’t perform all that well in comparison to the M&G fund. This one’s remit allows up to 20% of its funds to take advantage of opportunities outside its core strategy. Judging by its top 10 holdings I don't believe it's a clone of their corporate bond fund.
25% Index Linked Bonds
Volatile and did suffer back in Sept/Oct with many other bond funds. However I think the there are inflation risks. In theory this should behave somewhat differently to a non-indexed bond fund.
15% Absolute Return
As well as the usual fixed-interest securities it will also invest in derivatives and take short positions.
Okay – not bonds but a small pocket of equities in a bond fund should reduce risk and increase return. This fund is also far less volatile than the traditional equity fund.
None of these funds should have significant forex exposure. I’ve avoided global bonds on the assumption that Sterling is undervalued. If there’s further Sterling appreciation I might allocate 20% towards global bonds with a further breakdown (corporate, index linked, absolute return, etc).The basic strategy is to have a portfolio whose component funds are somewhat uncorrelated. If they behave differently to some extent then they should even out each other’s movements somewhat therefore reducing volatility even though individual funds can be volatile.
Any thoughts? Does this approach look sound enough?
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Comments
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Did you not want any exposure to high yeild?0
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I'm sure most of those funds will have small amounts of high yield exposure where they see opportunities. But I'm not looking for a specific allocation - I prefer to concentrate on the investment-grade end given my liquidation horizon and volatility tolerance.0
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For reference........
Corporate Bonds- Invesco Perpetual Corporate Bond - 44% International Bonds exposure
- M&G Corporate Bond - 45% International Bonds exposure
- 20% M&G Strategic Corp Bd - 44% International Bonds exposure
Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone0 - Invesco Perpetual Corporate Bond - 44% International Bonds exposure
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For reference........
Corporate Bonds- Invesco Perpetual Corporate Bond - 44% International Bonds exposure
- M&G Corporate Bond - 45% International Bonds exposure
- 20% M&G Strategic Corp Bd - 44% International Bonds exposure
I'll take a closer look at the financial statements but I think most of those international bonds are actually sterling issues. The managers also generally use currency hedging where the bonds are non-sterling.0 -
Jon, have to admit I only checked the geographical analysis as provided by H-L (I have a couple of those on your lists and was curious).Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone0
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