What bonds/gilts do people hold?

oldvicar

gadgetmind wrote: »

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



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

Ruffer seems to argue against conventional gilts, but has clients overweight in linkers.

A bit like the independent BoE's pension fund.

I must say it was your comments that made me seek out the Ruffer report, and I was pleased it was in accord with what gut was telling me. Only Ruffer puts it so much more eloquently and convincingly.

gadgetmind

oldvicar wrote: »

Only Ruffer puts it so much more eloquently and convincingly.

Yes, their reports are always enlightening and entertaining. They are happy to sit on the sidelines as the less risk averse tear past, and then do the old tortoise and hare thing when it all goes wrong.

It's a fuddy duddy approach that only a crusty old Investment Trust can really pull off as the manager of an open-ended vehicle would be fired during the "good" times for under performance.

gadgetmind

Ark_Welder wrote: »

My use of the IPMIP fund is as the main income generator for a particular investment pool.

Have you considered holding a variety of income (or growth and income depending on timescale) Investment Trusts?

Ark_Welder

gadgetmind wrote: »

Have you considered holding a variety of income (or growth and income depending on timescale) Investment Trusts?

You mean in addition to the ones that I have already...? The aim of this particular pool is to generate income now rather than growing it with the future in mind. IPMIP generates a higher level of income than growth & income ITs, does so without gearing and comes in with a lower risk score (Trustnet). Plus I'm not overly-confident of equities just now - not enough to reduce, but I don't want to pile in either.

There are very few IT equivalents that are bond-oriented and I've never fancied them for some reason - but not one that I can properly identify: might be due to the restricted choices (not that that has stopped me in other sectors, though...).

The income being generated is being reinvested into the 'growing income to be taken now' pool. This is different to the 'growing income for the future' and 'capital preservation now with the intention of generating an income in the future' pools...

Alternatively, the income will either go into, or replace, depleted cash holdings once the current car has packed-up and a replacement is needed. Not quite a 'now', just an 'at some point sooner than I think'.

But Lowland and Perpetual I&G do have quite a Siren-like effect on me - on the grounds that TMPL is already my second largest holding, so it must be the third Siren calling!. But any investments will be done gradually over the next year or so, but possibly after PE has been increased.

talexuser

Thanks to gadgetmind and Ark Welder for their thoughts.

Ark_Welder

Another area where high-yield bonds might be considered is as part of a HYP, especially if a either target yield or target level of income is in mind. If one takes the view that high yields are a sign of increased risk - for both equities and bonds - then using bonds to generate a portion of the income should allow lower-yielding equities to be considered for the portfolio, increasing the number of choices available. One of the dangers with investing for yield is that it is set at too high a level and that this will crimp the ability for it to grow. And an income that does not grow faster than the rate of inflation is an income that will not deliver in the long term.

A high dividend might be the sign that there are expectations that it will either be cut, or that it will not grow much - especially when compared with other companies. If the dividend was safe and/or was expected to grow at a good pace then investors (institutional, of the active kind) would already have piled in (to more than just an index-weighting level) - and the share would not have such a high yield. By including (relatively) lower-yielding equities in the portfolio then there should be more potential for the dividends to be increased at a rate that is higher than the rate of inflation.
If the HYP is started before it is needed then the dividends might have grown sufficiently for the bonds to wither away or be dumped completely. Hopefully, the dividend increases would continue to outpace inflation.

And if the 'answer' is 'utilities', then these companies are subject periodic regulatory review, and are also open to one-off tax raids by the Chancellor of the day: how many times are the energy suppliers criticised for raising their prices whilst making increasing bumper profits? (Posted as a holder of SSE...). Also, some of these companies have quite high levels of debt, and a fair proportion of this debt is inflation-linked meaning that the cost of servicing will increase along with inflation, so there may be less scope to increase the dividend at a good pave in the future.

Ark_Welder

An example of how a higher dividend might be at risk from being cut. In this particular example, it is an investment trust that is doing the cutting, and shows that a revenue reserve can last for only so long.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11061727

Similar can happen with OEICs (Newton Higher Income, for example) as well as individual companies.

gadgetmind

Ark_Welder wrote: »

A high dividend might be the sign that there are expectations that it will either be cut, or that it will not grow much - especially when compared with other companies.

Agreed. The quest for yield at the expense of everything else can come a cropper, which we've seen with ITs, OEICs and even the IUKD ETF.

My own HYP is high on yield, but that's at least partly due to me buying it during August and September this year. I have balanced the high yielders with the odd miner, Reckitt Benckiser, Diageo, Tate and Lyle, and there are a few other lower yielders that will hopefully grow in there.

I intend to watch dividend growth rates like a hawk over the next decade, and use reinvested dividends to pick up more holdings.

iAMaLONDONER

gadgetmind wrote: »

Gilts scare me right now, in fact they started scaring me 8 months ago, and I reduced a lot. This means I lost out on recent gains, but I don't mind missing the part of the bubble just before the pop!

I'm looking at trimming even further and instead going for very short-dated bonds. I have my eye on a couple of funds, but wondered what others use for fixed interest in these difficult times?

I have 100 premium bonds :money:

Ark_Welder

Another strangely, re-activated thread...

...so to update...:p


SSE is still held - and topped up earlier this year
Purchases were made in both LWI and PLI - they sang, I listened
PE has been increased - both before and after the two ITs
TMPL is now the largest holding (was anyway, ignoring the SIPP holdings)
IPMIP is no more - combined process of reducing high-yield bond holdings and changing the emphasis more towards the floating rate variety