If Gilts are low risk then why has the BGI Index-linked gilt fund fallen today?

MiserlyMartin

Its 4% down in line with the FTSE. I thought this was a safe fund in times like this, so why has it fallen? I should have gone to cash I think.

Can anyone more knowledgable explain / advise please

jon3001

MiserlyMartin wrote: »

Its 4% down in line with the FTSE. I thought this was a safe fund in times like this, so why has it fallen? I should have gone to cash I think.

Can anyone more knowledgable explain / advise please

Low risk and safe compared to what?

Individual gilts, if bought and held to maturity, will indeed have a guaranteed return over RPI inflation. And they're backed by the government so in that sense they're riskless.

However they're still sold and bought on the market so they're are subject to capital fluctuations in the meantime. But one would expect the overall year-on-year volatility to be lower than say for shares.

Oil is down sharply in recent weeks and, these being inflation linked, are perhaps pricing in a drop in inflation. So, in real terms, maybe you're not much worse off.

purch

If Gilts are low risk

Gilts are low risk in themselves because they are backed by HM Gov.

A Gilt bought and held to maturity is Low Risk, because price paid, and value at maturity is known at the outset and will not change.

Gilt Funds are often incorrectly classed as Low Risk by the Investment community, because they are traded instruments which are marked to market.

A Gilt or Bond Fund has no maturity, therefore the in built low risk of these instruments is effectively negated, and you are at the mercy of the Fund Manager's ability and the movements of the market.

MiserlyMartin

Thanks. It went up 0.8% today, as you say. This is certainly a learning experience. I had predicted a recession would happen coupled with a house price crash and tightening of credit. I did not expect it to happen as severely as this. And I didn't think to protect my pension funds.

I should have switched into low risk funds over a year ago and I wouldn't be 15% down.

I guess I'll just have to ride it out now in the gilts fund. Cash would have been better. Next time.....