My investments - comments?

ukdickie31

I wonder what thoughts people have on my types of investments, given the Euro troubles.

I have been investing on a monthly basis since July into three funds and hope to have about £5000 invested by March towards the S&S ISA (CASH ISA maxed out).

Aiming for the lower risk element and trying to have relatively low fees, but a reasonable investment record, I have invested in the following :-

Kames High Yield Bond
Newton Real Return
Threadneedle Managed Income

All have dividends reinvested

Current value is £2265 from the £2300 invested

By feeding into these monthly I am running very close to break even (just 1.5% down) whereas the stock markets are running much lower over the same period.

If the Euro continues its troubles, are these types on investments still at the lower end of the risk ?

If the Euro crumbles and Greece etc do actually come out of the Euro, are these still the less risky option ?

Many thanks.

Ark_Welder

I would look into your bond allocations with these funds. You might have a higher exposure to high-yield bonds than you expect (high-yield bonds are sometimes also known as non-investment grade, or junk bonds). High-yield bonds tend to have a higher correlation with equities, i.e. if shares do well then high-yield do well - and if shares do badly then these bonds will also do badly (but not necessarily by as much). Investment grade (or high grade) bonds tend to be less correlated to shares - although these are unusual times and the prices of these are sometimes moving in the same direction as shares).

According to the latest factsheets, the Kames fund has only 9% investment grade, and the Newton fund has around 16% of its bonds to investment grade (so 84% high yield. Bonds in total make up around 35% of the funds assets.)

The Threadneedle is a bit more difficult to determine because it uses funds for its allocations, so assume the 11.6% corporate bond as high-grade, and the 6.5% high-yield fund as exactly that.

Kames High Yield
Newton Real Return
Threadneedle Managed Income


Given the two other funds, I would probably look to replace the Kames fund with something from the Sterling Corporate Bond sector (but be wary of funds in this sector that are holding lots of gilts). And I don't say this lightly because I hold the Kames fund in my own portfolio as part of my high-yield bond allocation. Possible alternatives would be something from the Strategic Bond sector, but check the fund documentation to see if they keep a lower allocation to high-yield bonds so that you don't get too much in them again.


Some reading matter:

http://www.pimco.com/EN/Education/Pages/CorporateBonds.aspx
http://www.pimco.com/EN/Education/Pages/TheRoleofHighYieldBonds.aspx

ukdickie31

Many thanks... Will give them a read