What bonds/gilts do people hold?

gadgetmind

bongoali wrote: »

re: shares.. do you guys trade on individual shares?

I do but only with a small part of my total portfolio. I also go for long-term-buy-and-hold rather than active trading.

re: bonds.. are they similar to shares in that you can invest into individual bonds or groups of bonds = 'fund' ?

Yes.

are you saying that bonds have given a better return than shares in recent times?

Sometimes equities do better, and sometimes bonds. Importantly, they tend to behave very differently to each other, which lets you rebalance. If your equities soar, then you slowly sell them down to maintain your target balance and buy cheap bonds. Other times you do the opposite. Sell high, buy low, get rich slow.

gadgetmind

oldvicar wrote: »

On the other hand, looking at the downside from the top of this precipice it is an awful long way down, even to where things were just few years ago.

In a recent Ruffer factsheet they said that holding gilts now was dangerous, but not holding them was suicidal.

I'd venture that now is a good time to be underweight in fixed interest bonds compared to traditional allocations.

I hope you're right as I've moved £200k from bonds/cash into equities during 2011! Where is the chewing fingernails smiley?

deadpeasant

Thanks for the reply and support.

gadgetmind wrote: »

I think you've showed that all attempts at macro-economic guesswork (very much including mine!) are doomed.

Doesn't it show that Hale's basic approach is right?
- equities for long term growth (some of it underlying growth, some of it reinvested dividends)
- IL gilts as a hedge against volatility and inflation
- ordinary gilts as a hedge against occasional equity crashes
- hold the above with no faffing aside from cautious rebalancing and a skew away from equities as retirement looms

Or is there some impending doom for gilts that I don't understand?

gadgetmind wrote: »

I'm looking at the Smith & Williamson Short Dated Corporate Bond Fund. No up front or bid/offer on Best Invest, no trading fees, and TER *only% 1%.

Short-dated bonds/gilts don't change in value as much due to either changes in inflation, interest or safe-haven seeking as the "yield to redemption" is far more stable.

I hadn't heard of this. It doesn't attract HL's new tracker tax, and it seems to offer a somewhat better yield than a high street savings account in exchange for a little bit of volatility (but it hasn't been going long). Is the idea that this is safer than IL gilts?

talexuser

I diversified various family member ISAs into M&G Optimal Income (done fine), M&G Corporate Bond (done ok), and Invesco Perpetual Monthly Income Plus (underperformed and on switch watch) some time ago to balance the UK equities. As long as interest rates stay this low it's worth having some safety when equities have their periodic volatile falls.

gadgetmind

deadpeasant wrote: »

Doesn't it show that Hale's basic approach is right?

Yes, but there's nothing wrong with dynamic rebalancing. The FTSE 100 is on a p/e on <10 and gilts are on 44+. That guides my hand by can still guide it the wrong way!

Or is there some impending doom for gilts that I don't understand?

Not doom, but perhaps a sharp correction. Their safe-haven status is such that some are being bought even though they are guarantee to have a negative yield to maturity!

I hadn't heard of this. It doesn't attract HL's new tracker tax, and it seems to offer a somewhat better yield than a high street savings account in exchange for a little bit of volatility (but it hasn't been going long). Is the idea that this is safer than IL gilts?

Because the bonds are short-dated, they pretty much know what each bond will yield. While it might not have the (slightly?) upside possibilities of gilts, it lacks their (likely?) medium term downside.

gadgetmind

Invesco Perpetual Monthly Income Plus

This has some equities (fags, pharma and vodafone) in there to juice up the yield. I'm surprised it hasn't done slightly better, but I prefer my bonds to be bonds.

talexuser wrote: »

M&G Optimal Income (done fine)

This is doing the same thing, 85%+ bonds and some high-yield equities.

M&G Corporate Bond (done ok)

95%+ bonds.

The S&W short dated should behave far more like cash, which is worth considering *if* you think that equities are about to rise and fixed interest to fall.

Only time will tell, but I was considering cash+equities until things settle as I see little further upside for bonds/gilts (how low *can* yields go?) so the S&W is a useful option.

Ark_Welder

talexuser wrote: »

I diversified various family member ISAs into M&G Optimal Income (done fine), M&G Corporate Bond (done ok), and Invesco Perpetual Monthly Income Plus (underperformed and on switch watch) some time ago to balance the UK equities. As long as interest rates stay this low it's worth having some safety when equities have their periodic volatile falls.

Point to remember about the InvPerp fund is that it is around 20% equities, and of the bonds only around 25% are investment grade. So it will tend to act differently to the M&G funds and move more in line with the general direction of equities - but with lower volatility (hopefully). I have been moving more toward sub-investment grade bonds from high grade the last few months and this fund is one that I have been increasing. Sub-investment grade bonds have generally been falling this year and IPMIP's remit lies more in this area than with high grade bonds: in fact, it shows a higher corrleation with the Sterling High Yield secror than it does with Strategic Bonds. But I'm not going to say "don't switch", but do have a think about the sectors to which you might switch and the reasons for doing so.

Ark_Welder

deadpeasant wrote: »

Or is there some impending doom for gilts that I don't understand?

I hadn't heard of this. It doesn't attract HL's new tracker tax, and it seems to offer a somewhat better yield than a high street savings account in exchange for a little bit of volatility (but it hasn't been going long). Is the idea that this is safer than IL gilts?

Depends upon your view on inflation. Redemption yields on conventional gilts are below current levels of inflation, so if you expect inflation to remain at current levels then you will make a loss in real terms. Overpriced also means 'trading above par', so you can expect a capital loss too (note that this loss is accounted for in the redemption yield). If inflation falls over the duration that the gilt is held then your real return should hold up. But if inflation does take off then your real return could be substantially less than expected.

The prices of short-duration bonds are less affected by inflation and interest rate expectations because they are relatively close to their redemption dates, and as they are usually redeemed at a fixed price the return is known. Because longer duration bonds are much further from being redeemed and usually have a fixed coupon (i.e. interest payment), inflation has more time to erode the the return and the chance that interest rates could move higher may make their return less attractive when compared to cash. Short duration bonds are not necessarily 'safer' than IL gilts - corporate bonds usually have a lower credit rating - but the real return can more easily be determined (at least, from individual bonds). IL gilts might me used to address longer term scenarios.

gadgetmind

Ark_Welder wrote: »

in fact, it shows a higher corrleation with the Sterling High Yield secror than it does with Strategic Bonds.

That's why I tend to avoid *most* of these types of investments. If I want to hold high yield equities then I have four online platforms that all have a button to let me do this! I'd much rather have simple components that I can combine.

Of course, I then go and hold multi-asset (with a side order of shorting, leverage, derivative and coleslaw) ITs like Personal Assets and Ruffer, so you can't believe a word I say.

Ark_Welder

gadgetmind wrote: »

That's why I tend to avoid *most* of these types of investments. If I want to hold high yield equities then I have four online platforms that all have a button to let me do this! I'd much rather have simple components that I can combine.

Of course, I then go and hold multi-asset (with a side order of shorting, leverage, derivative and coleslaw) ITs like Personal Assets and Ruffer, so you can't believe a word I say.

My use of the IPMIP fund is as the main income generator for a particular investment pool. It is a fund where I'm saying that I'll be happy to be wrong: I'm not expecting great things from equities over the next year or so, but if I am wrong and they do do better than expected then the ones held by the fund should provide it with a bit of extra capital growth in addition to any improvement to the credit ratings of individual bonds. In the meantime, the additional yield can be periodically recycled into other assets, which ought to be equities, but I am considering upping the PE again. Decisions, decisions. I'm also trying to not do anything until the New Year...