Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • pinkllama
    • By pinkllama 7th Jan 18, 2:54 PM
    • 104Posts
    • 42Thanks
    pinkllama
    Bond Fund Questions
    • #1
    • 7th Jan 18, 2:54 PM
    Bond Fund Questions 7th Jan 18 at 2:54 PM
    Hi All,

    For my new ISA contributions from April, I'm going to invest monthly into a global index tracker and one or two bond funds.
    Being in the UK it is common wisdom to go Gilts and maybe a corporate bond. I have been taking a look at Vanguard bond funds and to my eyes it seems that investing in the following funds might be a better idea.
    U.S. Government Bond Index Fund (Hedged) 0.25%
    U.S. Investment Grade Credit Index Fund (Hedged) 0.30%

    They both have a higher yield than their UK equivalents as well as shorter durations.
    Apart from being slightly more expensive than Vanguards UK Gilts and UK Corporate Bond Indexes, is there any reason not to go with these?

    Thanks
Page 1
    • A_T
    • By A_T 7th Jan 18, 3:52 PM
    • 284 Posts
    • 167 Thanks
    A_T
    • #2
    • 7th Jan 18, 3:52 PM
    • #2
    • 7th Jan 18, 3:52 PM
    What function do you hope bond funds will perform in your portfolio?
    • capital0ne
    • By capital0ne 7th Jan 18, 4:01 PM
    • 267 Posts
    • 133 Thanks
    capital0ne
    • #3
    • 7th Jan 18, 4:01 PM
    • #3
    • 7th Jan 18, 4:01 PM
    Most people think they protect you against falls in equity values
    • dunstonh
    • By dunstonh 7th Jan 18, 4:11 PM
    • 90,450 Posts
    • 57,239 Thanks
    dunstonh
    • #4
    • 7th Jan 18, 4:11 PM
    • #4
    • 7th Jan 18, 4:11 PM
    Being in the UK it is common wisdom to go Gilts and maybe a corporate bond.
    Generally, you split the fixed interest sector over gilts, index linked gilts, global bond, high yield bonds/global high yield bonds.

    Picking just two of those will involve a management decision. In your case, you have selected two very focused funds. So, what strategy are you trying to follow with your management decision? Why those and not the others? Why not a spread?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • pinkllama
    • By pinkllama 7th Jan 18, 4:11 PM
    • 104 Posts
    • 42 Thanks
    pinkllama
    • #5
    • 7th Jan 18, 4:11 PM
    • #5
    • 7th Jan 18, 4:11 PM
    They'd mainly be to rebalance with when equities go down. I'm planning on having 70% equities and 30% bonds.
    I'd also feel more secure having bonds, as a backup to my emergency cash and cash savings.

    I've currently got £30k in Vanguard Lifestrategy 80. I'm happy to just leave this alone for 10+ years but realise that it may be inaccessible for a long time due to falls in the market. This is why I want to separate my new contributions into equity and bond funds.
    • TheTracker
    • By TheTracker 7th Jan 18, 4:12 PM
    • 1,181 Posts
    • 1,159 Thanks
    TheTracker
    • #6
    • 7th Jan 18, 4:12 PM
    • #6
    • 7th Jan 18, 4:12 PM
    Read up on hedging. The cost of hedging currency risk is based on the differences of interest rates between the countries, which largely gave rise to the yield in the first place, so return can be dampened. Hedging also costs. Because of this it might form part of your strategy but probably not all of it.
    • A_T
    • By A_T 7th Jan 18, 4:22 PM
    • 284 Posts
    • 167 Thanks
    A_T
    • #7
    • 7th Jan 18, 4:22 PM
    • #7
    • 7th Jan 18, 4:22 PM
    It's worth noting that in the global financial crisis GBP corporate bonds funds fell along with equity funds. On the other hand UK gilt funds went up.
    • pinkllama
    • By pinkllama 7th Jan 18, 6:13 PM
    • 104 Posts
    • 42 Thanks
    pinkllama
    • #8
    • 7th Jan 18, 6:13 PM
    • #8
    • 7th Jan 18, 6:13 PM
    thanks for all the advice.
    • pip895
    • By pip895 7th Jan 18, 9:56 PM
    • 500 Posts
    • 280 Thanks
    pip895
    • #9
    • 7th Jan 18, 9:56 PM
    • #9
    • 7th Jan 18, 9:56 PM
    I find the bond/guilt section of my portfolio quite a concern to.

    I initially picked iShares £ Corporate Bond 0-5yr UCITS ETF GBP & iShares Global High Yield Corp Bond GBP Hedged GBP.

    I'm now wondering if going for an active strategic bond fund like M&G Optimal income might be better, on the grounds that an experienced manager might have a better chance of picking the more resilient areas - Guilt's held up well last time round, but next time - who knows?? I'm also going with a good wodge of cash - I'm really uninspired by the fixed interest part of my portfolio.
    • Linton
    • By Linton 7th Jan 18, 10:18 PM
    • 8,870 Posts
    • 8,911 Thanks
    Linton
    Unlike equity, bonds are simple and transparent. You know exactly what return you are going to get when you buy one and keep it to maturity. Managing a portfolio of different bonds of different types and different maturity dates is a mathematical exercise and in my view is best left to the experts and their software. So given the difficult state of the gilt market and international developed world government bond markets I would go for a strategic bond fund every time.

    If you buy a set of funds covering Dunstonh's list on what basis will you choose the %s and what will be your management strategy? It seems to me that if you dont know for example the maturity dates of the underlying holdings you are wandering around with a blindfold on.
    • username12345678
    • By username12345678 7th Jan 18, 11:51 PM
    • 172 Posts
    • 74 Thanks
    username12345678
    I want my bond allocation to reduce volatility not derive any meaningful return.

    What bothers me is the almost 'return free risk' prospect that government bonds in particular seem to be offering.

    There is the option of one of the ultra short term bond etf's (eg ERNS) or a money market fund (eg RL Cash Plus) but what you gain in a peaceful nights sleep is off-set with the nagging knowledge of inflation invisibly eating away at this part of your portfolio.

    The way i've reconciled myself with this is accepting that the bond/wealth preservation element of my SIPP will be a necessary drag on performance during a rising market and I have trigger points where I will piecemeal transition out of FI/WP during a market fall and increase my equity exposure.

    Formulating and writing the plan down (with reasoning) will hopefully help me execute it in the event of severe 08/09 type turbulence rather then being sat frozen (like last time!)
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

3,789Posts Today

9,199Users online

Martin's Twitter