Absolute codswallop , correct ?

eeja

Quoted in today's Times newspaper (Money section) on corporate bonds :

Chris Bowie, manager of the Ignis Corporate Bond Fund, said: “Investors can achieve comfortable double-digit yields on household names. Sainsbury's, for instance, has a 14 per cent yield while investors can secure 16 per cent with Barclays, HBOS or RBS. Aviva is yielding 15 per cent and Standard Life 12 per cent. Even away from financials and retailers, there are yields of 10 per cent with the likes of Firstgroup, BT and Imperial Tobacco.

Paul_Herring

http://forums.moneysavingexpert.com/showthread.html?p=15900141#post15900141

dunstonh

Nope. Its correct. That is why the corp bond sector are predicting 10-15% gains p.a. for the next 2 years and investment grade 15-20%.

Doesnt mean they will but the information suggests the potential to be right.

oldandgrumpy

Artemis High Income, main holding is in bonds....current yield...10.8%! True, latest quarterly payment is in the bank. Hope you are right on the 2 years, dunstooth.

purch

Nope. Its correct. That is why the corp bond sector are predicting 10-15% gains p.a. for the next 2 years and investment grade 15-20%

I don't think it is correct.

The total returns could and should be in those areas but the Yields are not

Aviva ECU6 Yields 9.99% to Maturity.

British Telecom ETB8 Yields 8.8%, BT ETB2 8.25%

Imperial Tobacco EIM2 Yields 5.5% :eek:

I don't know of any RBS Bonds that are tradeable, but RBS Prefs only yield 7.7 %.

Even the Perpetual Bonds issued by Barclays only yield 11% so I don't know where this 'stiff' get's the 16% he's claiming !!!!

It is totally misleading to claim these ficticious Yields.

To obtain returns of such values you have to take on greater risk than just the risk of default, and this is why these Funds are usually mis-marketed as lower risk than they actually are.

donnykebab

oldandgrumpy wrote: »

Artemis High Income, main holding is in bonds....current yield...10.8%! True, latest quarterly payment is in the bank. Hope you are right on the 2 years, dunstooth.

which must have been comforting given the 25% drop in value of this fund over the last few months

david78

As cash savings rates are now poor, I am thinking of not utilising my £3600 cash ISA allowance next year and putting this in a corporate bond fund in my investment ISA instead. I have the cash sitting in a Halifax Fixed Rate (7%) Regular Saver account until March and would just move the whole lot into my ISA with Hargreaves-Lansdown on April 6. I have until then to decide.

I haven't picked a fund or mix of funds yet (there are some good candidates). I plan to fully utilise the remaining £3600 allowance spread over the year with monthly (£300) payments that are invested in various equity funds.

I'm investing for the long term, 10+ years.

Any comments on this strategy?

dunstonh

Just remember that the fixed interest sectors contain funds of varying risk. Dont assume that they are all the same risk level. And dont go by past performance as that will distort what you are looking at (although do look it at as it will highlight the drops that have occurred and remind you its not risk free). Remember its future potential not past performance that matters.

purch

Any comments on this strategy?

As long as you are comfortable with the additional risks beyond the yeild, involved, then I think it is a good strategy.

The main additional risk is that the 'recession' is deeper than expected, which leads to possible defaults and more high profile company failures which will mean prices on Corporarate Bonds drop, meaning the underlying value of your capital investment will fall.

If the 'recession' pans out as expected, or even is not as bad then prices on the Bonds could rise significantly which will give you a decent profit in addition to the yield.

oldandgrumpy

Yeah donnykebab, noted the 25% drop but also that my quarterly payouts go UP when the fund goes down, and the last 3 quarters have shown an increase in the amount paid out from £450 in May, £459 in Oct and £469 this month. Not much but no loss. Compare and contrast the returns on savings which are showing drastic drops.

dunstonh

The main additional risk is that the 'recession' is deeper than expected, which leads to possible defaults and more high profile company failures which will mean prices on Corporarate Bonds drop, meaning the underlying value of your capital investment will fall.

I was reading that current pricing (at least at the time of the article) that pricing on bonds was at a level of 50% expected failure. That is higher than the Great Depression.

If its as bad as that, then it should be priced in. If its worse, they will go down in value. If its better, they should go up in value. That is the basis for the optimistic views on bonds as the "feeling" is that 50% failure is not likely to be as high as that. Time will tell.