Telegraph article-bond funds..

DiggerUK

C_Mababejive wrote: »

......QE tap off or tapering= bad for bond funds.....Why?

.....Surely corporate bond funds will still continue to generate the same returns as they are effectively long term loans.....If good quality bonds were so wobbly,why do pension funds de-risk into them?

Pension funds have encouraged 'lifestyling' as an investment strategy when approaching retirement, the reason in the past was the raised level of security of your pot. Not so hot these days.

What needs to be realised is that corporate bonds and government bonds are two different beasts. QE benefits corporate bonds more than government bonds. This article explains what the Telegraph article misses out.
..._

grizzly1911

grey_gym_sock wrote: »

will it be a good idea to reverse QE at some time? i don't see why. you expect the money supply to expand over time. its growth over the last few years has been achieved by unusual means. but why would you want to reverse it?

I very much doubt it will be reversed. Does make me wonder what they will do next timeand how much more regular stimulus will actually be required to keep the nose up longer term.

C_Mababejive

The_Thrilla wrote: »

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.



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.

But what if you are in a bond fund that doesnt touch guilts or has very limited exposure?

C_Mababejive

DiggerUK wrote: »

Pension funds have encouraged 'lifestyling' as an investment strategy when approaching retirement, the reason in the past was the raised level of security of your pot. Not so hot these days.

What needs to be realised is that corporate bonds and government bonds are two different beasts. QE benefits corporate bonds more than government bonds. This article explains what the Telegraph article misses out.
..._

Exactly..my main interest is in investment grade corp bond funds...not guilts which are as bent as a nine bob note

The_Thrilla

C_Mababejive wrote: »

But what if you are in a bond fund that doesnt touch guilts or has very limited exposure?

Yes, for retail investors it is tricky to invest directly in corporate bonds, so they are almost forced to use unit trusts or investment trusts. One of the problems in recent years is that it became fashionable among fund managers to buy gilts. I bought into a Halifax unit trust that specialised only in corporates. I read its monthly bulletin, and they were saying that they had decided to load up on gilts "for added safety." Normally, I don't have an issue with government bonds. But right at this time, government bonds are probably the most toxic investment on the planet. "Safety" indeed. Naturally, I got out of this fund immediately. So, although you may have a "corporate" fund, a portion of it may be in gilts.

Also you have overspill. Investors, in search of a decent yield, have been giving up on gilts and looking at corporates. So corporate bonds right at this moment are not yielding as much as they normally would if economic times were better. I have recently been watching the price of the investment trust Invesco Leveraged High Yield Fund [ILH]. One thing I noticed is that the trust has been resilient to sudden huge drops in the rest of the stock market: either it stays at the same price or the price rises, while the rest of the market tanks. This suggests to me that investors are still piling into corporate bonds. (BTW even this fund, has a portion of its holdings in US Treasuries.)

Hope the above answers your question.

gadgetmind

The_Thrilla wrote: »

Yes, for retail investors it is tricky to invest directly in corporate bonds

Now we have ORB, it much easier than it was, but there is a danger that smaller investors won't diversify sufficiently.

they are almost forced to use unit trusts or investment trusts.

There are plenty of ETFs. I hold SLXX and ISXF but you can also reduce duration by using IS15 and suchlike. There are also trackers such as those from Vanguard.

You can also use strategic bond funds, many of which actually have negative duration on gilts. I hold Old Mutual and Kames.

slinga

Slightly off subject but this article gives funds to invest in long term
http://www.telegraph.co.uk/finance/personalfinance/investing/10338758/The-15-best-buy-and-forget-funds.html

Now I've been invested in Fidelity Special Situations for about 25 years and when I check their funds against Fid SS I see that my fund beats all of the ones on HL that I can chart.

Why isn't Fid SS one of the so called experts' suggestions???

gadgetmind

If I remember correctly, that's one of those vanishingly rare active funds where a manager actually added value. Of course, this isn't something you can recognise other than in the rear-view mirror, but it's nevertheless interesting to find such examples.

Said manager then went on to manage a China fund, which has suffered from terrible performance, some down to bad luck coupled with gearing, but in other cases naivety in the form of trusting paperwork published by companies over there.

As for the experts, they tend to look at what's done well recently and so effectively provide advice to buy what's just gone up.

jamesd

Fidelity Special Situations isn't recommended because the manager changed. Fund performance can be very sensitive to the specific human)s) involved and it is quite common to recommend selling as soon as a manager changes, since the result of the change is unknown, while the alternatives have known past performance that is more reliable than nothing at all as a predictor.

To give some idea of that manager change effect, some years back here I posted about the utility of just picking the top global growth funds. What happened after that was that the top ten funds continued to outperform for several years except where the manager changed.

gadgetmind

jamesd wrote: »

Fund performance can be very sensitive to the specific human)s) involved and it is quite common to recommend selling as soon as a manager changes

I think we've discussed the "hot hands theory" in the past.