M&G Optimal Income - too good to be true?

wobblegobble

Final question to complete my course in Bonds 101

Many people would say a fund that could lose up to 30% of it's value in worst case scenario isn't low risk, however I am assuming the low Trustnet risk rating is due to the fact that this will be a gradual decline as interest rates rise and the worst case scenario decline will be about 30% maximum?

Compared to 100% equity funds which could halve in one day and be worthless in a worst case scenario?

puzzledinvestor

Trustnet's and many other risk measures are based on the volatility of past returns, so they are only meaningful as long as conditions remain broadly the same (and volatility by itself is not perfect; a fund losing 1% every single month would have 0 volatility, but that would not make you any happier I guess). If you had looked at a similar measure for an MBS fund in 2007 it would probably have appeared also as very low risk.

The optimal income fund was only started in 2006, but if you look at his strategic corporate bond fund, it was up around 15% from 2004 to 2007, when interest rates going up. Again, there is no guarantee that the performance will be the same, and losses are definitely a possibility.

blinko

do you have the opportunity to short bonds ?

gadgetmind

Quite a few strategic bond funds are long on "riskier" sovereign bonds and short on "safe" ones such as bunds. This strategy is starting to work but has a fair way to go yet.