To rise when gilts fall

kidmugsy

Is there an investment that I can buy in a SIPP, that is designed to go up in capital value when gilts go down in capital value? Or, almost the same thing, that goes up in capital value when interest rates go up?

Or should I ask this in a different forum?

Loughton_Monkey

That would be a 'short' Gilt fund (or more likely ETF). As far as I know, they don't exist.

kidmugsy

Thanks, LM. Darn it! I've seen reference to such a thing for US Treasuries and was hoping for ditto for Gilts. Darn it!

property.advert

Huge issues with naked short selling at the moment.

A floating rate note will largely protect you from interest rate rises but will not give you the capital boost you seek. Another alternative could be interest rate futures (options).

JamesU

kidmugsy wrote: »

Is there an investment that I can buy in a SIPP, that is designed to go up in capital value when gilts go down in capital value? Or, almost the same thing, that goes up in capital value when interest rates go up?

The etf XUGS (db-xtracker) is a short for UK gilts. Inverse dbx etfs can correlate very well relative to main indices e.g. XDAX/SDAX. When etf XUGS is plotted against etf IGLT (ishare gilts) there is also a good mirrored inverse performance. But XUGS for short term trading and best to read up on downsides of holding etf shorts in the long term before considering. Details of XUGS in factsheet here:

http://www.etf.db.com/UK/pdf/EN/factsheet/factsheetLU0429459430_2011_02.pdf

Care with leveraged and short etfs as in this article (see EM discussion and effects of daily compounding):

http://news.morningstar.com/articlenet/article.aspx?id=271892&t1=1241098060

The RBS floating LIBOR bond RBLI is a hedge against increased interest rates. But as with the RBS RPI inflation hedges RBPI and RBPX, RBLI is trading quite low relative to maturity value for reasons I do not really understand, might be related to RBS risk of default due to debt, not sure. Care needed with counterparty risk, liquidity and spreads on RBLI, and RBLI currently trading around 7% below issue price, factsheet here:

http://ukmarkets.rbs.com/EN/MediaLibrary/Document/PDF/Factsheet/Products/Bonds/Floating_Rate_Bond_3.9_Factsheet_Final_2.pdf


JamesU

kidmugsy

That's my homework for the weekend set, then. Many thanks. Any further suggestions will also be welcome.

dougz_2

If the purpose of the question is to find something to hedge against future rising interest rates in response to inflation, then why not simply replace the gilts with index-linked ones?