Corporate Bonds - a quick recommendation please!

Bonds are usually classed as this, but currently they are inflated because, as you say, low interest rates. A lot of people are not recommending bonds as they think they are in a bubble.

You will find most funds have a 1% annual management charge if they are actively managed. Not sure why you think that makes it no better than your cash savings. It has returned 6.3% in the last year.

It maybe worthwhile going for a mixture of bonds and equities.

Gilts are what banks hold their "cash" in. They do have a market price, which fluctuates, but less so for short-term gilts, where the price is dragged towards the redemption value. So short-term gilts are as safe as cash, and as unexciting.

If you have a particular end date and you can hold bonds to redemption at that date, you don't have to worry about what the market price is doing. This is what the pension funds do.

Bond funds vary in how much freedom the manager has. Some (especially ETFs) are quite passive - their duty is to deliver exposure to a defined sector, and it's entirely down to you to deide when to get in and out of that sector.

With others, the manager aims to get an edge by outguessing the market within defined limits, wide or narrow. The successful (lucky) gilt fund manager will have been in long-term gilts while prices were rising and will be in short-term gilts when they fall. Managers of more strategic funds may be able to switch between government bonds, corporate bonds and cash. Many "income" funds are substantially in bonds, but move some money into shares when the going looks good.

Everybody knows that gilts are "overpriced" in some sense, but half the market thinks they'll get worse before they get better. A lot of people would like to see even looser monetary policy if they can get away with it. Inflation-linked prices aren't yet discounting the fear of double-figure inflation, but maybe soon they will be.

The M&G inflation-linked fund is at the cautious end of the sector, 90% in high-grade bonds. It aims to get an edge out of the belief that the default risk in corporate bonds is over-estimated by the market. The price and yield figures are after taking out the 1% charge.

On the other hand, junk bond funds have also done well lately, on a grab-the-money-and-run basis.

A fund that may be worth looking at is Troy Trojan, which aims to achieve capital protection by balancing blue-chip companies, index-linked gilts, gold and cash, to hedge different risks against each other.

(Past performance is not a guide to future performance.)

vertex wrote: »

Can you give me an example or two of what bond ETFs and/or strategic bond funds you are invested with?

I mostly use SLXX but have also added ISXF as I have a lot of direct financials exposure, mainly LLPC and NWBD.

For strategic bonds, I mostly use Old Mutual and Kames.

If pushed to pick only one, then I'd go for M&G Optimal Income. This is because it adds some equities, which can both increase returns and (counter-intuitively) reduce volatility.

I suggested you read "Smarter Investing" by Tim Hale and "The Intelligent Asset Allocator" by William Bernstein for background information. Please pop back afterwards.