Telegraph article-bond funds..

A_Flock_Of_Sheep

I have bonds in my portfolio. They occupy 22% of it.

I use an EFT Ticker IS15. The bonds are shorter in time. I think it is about 3.5 years. It pays a yield of 3.19%

I think I will stick to short length bonds. I have no Gilts though.

gadgetmind

planteria wrote: »

are they not? do you mean fund managers?

OK, I was wrong. QE has swung things around so non-UK holders of gilts are in the minority.

http://www.bondvigilantes.com/blog/2012/08/17/who-owns-government-bonds-these-days/

BTW, I'm now getting very worried about Australia and am trimming my exposure across the board.

A_Flock_Of_Sheep

gadgetmind wrote: »

OK, I was wrong. QE has swung things around so non-UK holders of gilts are in the minority.

http://www.bondvigilantes.com/blog/2012/08/17/who-owns-government-bonds-these-days/

BTW, I'm now getting very worried about Australia and am trimming my exposure across the board.

Out of interest Gadgetmind how are your bonds held in your portfolio? Do you use a fund, etf or do you own individual traded bonds.

There is a Halifax bond trading paying a coupon of 11%

gadgetmind

A_Flock_Of_Sheep wrote: »

Out of interest Gadgetmind how are your bonds held in your portfolio? Do you use a fund, etf or do you own individual traded bonds.

I've again reduced my exposure over recently months (started a couple of years ago, too early, oh well) and now mainly hold ISXF and SLXX ETFs and a couple of strategic bond funds. I also hold some bank prefs directly and (unusually for me) an open ended fund that holds bank credit. My wife also holds M&G Optimal Income and there are some passive holdings in my GPP.

There is a Halifax bond trading paying a coupon of 11%

Do not confuse coupon with yield. Do not confuse yield with yield to maturity. Also understand that fixed interest can only be understood by reading the full prospectus to you understand all possible calls and resets, and also make sure you understand how the game has changed over recent years.

As a hint, people now talk about "yield to worst case".

A_Flock_Of_Sheep

gadgetmind wrote: »

I've again reduced my exposure over recently months (started a couple of years ago, too early, oh well) and now mainly hold ISXF and SLXX ETFs and a couple of strategic bond funds. I also hold some bank prefs directly and (unusually for me) an open ended fund that holds bank credit. My wife also holds M&G Optimal Income and there are some passive holdings in my GPP.



Do not confuse coupon with yield. Do not confuse yield with yield to maturity. Also understand that fixed interest can only be understood by reading the full prospectus to you understand all possible calls and resets, and also make sure you understand how the game has changed over recent years.

As a hint, people now talk about "yield to worst case".

Am I right in thinking you have JLIF like me? If so you got the allocation to,purchase the new shares for the capital raising.. Are you buying more?

gadgetmind

A_Flock_Of_Sheep wrote: »

Am I right in thinking you have JLIF like me? If so you got the allocation to,purchase the new shares for the capital raising.. Are you buying more?

Yes, I've taken advantage of all of the issues of HICL, BBGI and JLIF that have come along. I'm uncomfortable (understatement!) with their premia so am happier buying at closer to NAV.

I also picked up TRIG when it recently launched and that also sailed up 5%.

I have no idea why people are buying at currently prices and wish they'd pack it in.

C_Mababejive

OK so to summarise,,if i hold units in well respected (!) investment grade bond funds, have i got much to worry about ?

gadgetmind

It really does depend on who you ask. However, I'd expect that those funds took a roasting a few weeks ago and have drifted down a little bit more since. I'd expect a bit more of that with coupons to take away some of the pain. Others predict a rout, but that's life.

The_Thrilla

C_Mababejive wrote: »

http://www.telegraph.co.uk/finance/personalfinance/investing/10324379/10-bond-funds-that-will-weather-the-storm.html

Now im not one of the mega wealthy and this may be because im failing to understand what others preach as received wisdom but the bottom line to this article seems to be

QE tap off or tapering= bad for bond funds

Why?

Because until recently, bond funds have been piling into government bonds. They have been making their money on the capital gains, while the yields have been little more than afterthoughts. Of course, they bought at premium (above par value).

Government bonds have been going into reverse, so anyone who bought at premium is now compromised. As yields rise and prices diminish, the fund manager is left with the choice of selling at a loss, or waiting till maturity, accepting a low yield and taking a haircut on capital gains.

That is why bond funds are now not a good place to be.

If good quality bonds were so wobbly,why do pension funds de-risk into them?

Depends what you mean by good quality bonds. Pension funds have to invest a certain percentage into gilts by law. Anyone with a pension plan is not going to be very happy.

IrnBruMan

gadgetmind has explained it as well as any bond fund managed I've sat in front of in recent months or years and I've sat in front of many including the Bond Vigilante guys at M&G who I do admire.

I'm an investment trust analyst and this issue of yield is one that has spilled over from bond funds, the historic home of yield. Investors are searching for yield all the place because QE has driven rates down so much.

Infrastructure, property, alternative assets, doctors surgery's, senior secured loans are all alternatives investors have seeked out and which I and others have had to analyse and assess (some of which I really do like). I doubt any of this would have happened to the same extent without QE.

I don't invest anything in bond funds for myself or my extended family right now because when the bond market switches, it can be swift and very brutal.

You are right to state that there hasn't been a great rotation from equities to bonds C_Mababejive
all that has happened is there has been a quite sensible and proper increased allocation to equities (many were underweight).

I'm not telling you to jump out of bonds but I am saying I don't invest there because I'm not being paid enough to take the risk that I'm gonna take a rough and not terribly sexy haircut.

Best of luck to you.