Corporate Bonds?

eeja

dunstonh wrote: »

eeja - the thread is about corporate bond funds. Not individual corp bonds.

Correct ! Please look at the posting above. In fact it does not refer to any specific corporate bond !
The posting is mainly to put people on their guard concerning strict covenants that might be included in certain bonds thereby affecting their value and asks whether such covenants are adhered to historically .

expounder

How in an income Isa managed corporate bond fund can the value of the coupon fall considerably but the monthly return remain the same as it was before the fall in value?

runciblespoon

So how does one go about picking a bond fund? For equities you look at past capital growth, asset classes, risk/volatility.

For a bond fund you want to look at current price against issue price, volatility, credit rating of the components, dividend yield. The past history isn't any help if the constituents have just been downgraded from AAA to FFF.

Does any of the data sites tabulate yield vs credit rating, for example?

eeja, when picking a bond fund how can one know whether the constituents are subject to such a condition?

agsnu

expounder wrote: »

How in an income Isa managed corporate bond fund can the value of the coupon fall considerably but the monthly return remain the same as it was before the fall in value?

The monthly return is defined by the coupon on the bond. The fall in value is due to the added risk of not being able to recoup the capital.

Say you invest £1000 in a 5-year corporate bond issued by SomeCorp Plc with a coupon of 10%... After the first year, you have had your £100 in income due to the coupon paid. However, SomeCorp Plc looks to be in financial difficulty, and the value of the bond drops because investors aren't sure that they'll be able to get the £1000 back in another 4 years time. SomeCorp manage to make it through the year, and meet their obligations paying the coupons - so the normal returns you receive are there.

Mid-way through year 3, SomeCorp goes bust, and the administrators inform you that you're unlikely to see all your money. No more coupon payments are made. Eventually, 25% of your capital is recovered from the liquidation of SomeCorp's assets. You are significantly worse off, which is why the bonds were trading at below face value.

purch

How in an income Isa managed corporate bond fund can the value of the coupon fall considerably but the monthly return remain the same as it was before the fall in value?

The Income Return is the sum of the Coupons received on the Bonds held. The Coupon does not change.

The Bonds themselves are tradeable instruments, just like Equity's are therefore move up and down in relation to market forces (interest rates, perceived risks etc etc) and supply and demand.

The Bonds held are marked to their market value, which is why the value of the Fund fluctuates, and can fall or rise significantly depending on markets.

dunstonh

You dont pick a bond fund. You pick several with ideally not much overlap and dont just look at corporate bonds but the whole fixed interest sector.

eeja

purch wrote: »

The Income Return is the sum of the Coupons received on the Bonds held. The Coupon does not change.

The Bonds themselves are tradeable instruments, just like Equity's are therefore move up and down in relation to market forces (interest rates, perceived risks etc etc) and supply and demand.

The Bonds held are marked to their market value, which is why the value of the Fund fluctuates, and can fall or rise significantly depending on markets.

Indeed the coupon does not change but with certain bonds issued by some perfectly sound and solvent companies you might not get any coupon !!
An example is where the bond covenants provides that should the Co not declare a dividend on its ordinary shares, no coupon will be paid to the bond holders . Not many investors are aware of this hence the need to reiterate this warning .

runciblespoon

dunstonh wrote: »

You dont pick a bond fund. You pick several with ideally not much overlap and dont just look at corporate bonds but the whole fixed interest sector.

OK then, so how do you pick several bond funds?
In other words, where can you find out the data that's specific to bond funds to narrow it down, without reading hundreds of prospectuses?

Primrose

I was going to ask the same question as runcible - i.e. is there a specific website which lists all the main organisations in which Corporate Bond Funds invest? I know the Funds Research section on the Hargreaves Lansdown website offers some information but normally only lists the biggest companies in which any fund has a holding..

runciblespoon

I've done some digging and found a bit of data. Picking a random fund:
http://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?tab=3&id=F000000732
Shows me the split of credit rating (AAA-BB and some 'not rated'), and the spread of maturities.
And the front page tells me the yield:
http://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?tab=0&id=F000000732

('tax year return' of 1.0% - does that mean it's projected to return 1% between now and 5th April, 1% in 2009-10, or 1% over the next 12 months? This one gives a 12 month yield of 6% and a tax year return of 1% which would suggest the first)

Are these returns before or after annual fees? Is there a particular reason many funds are only giving 'tax year returns' (all of 1%) - because they haven't a clue what's going to happen in the coming year?

Morningstar also has a credit rating/interest rate sensitivity screener. (What, precisely, is 'interest rate sensitivity?')

Meanwhile Citywire has some neat neat risk vs volatility plots.

But how do I find out face value of a particular fund? If I want to know how at much discount/premium the fund is trading, I can look at the current price. But I would need to know the face value first. Or does anyone tabulate discount/premium figures?