Should new money go into Bonds/Gilts?

kar999

I have pension pots in lifestyle profiles that had begun to start switching as I exceeded 55.
In view of the poor returns on fixed interest and cash investments and there being no longer a need to buy annuities I have taken the step of stopping the lifestyle. I have reintroduced a higher risk factor into my investment strategy but it's one I am fortunate enough to be able to afford to do.

Sobryma

You are trying to overlay active decisions on passive portfolio, i.e. trying to time a market or believing you have some edge or insight.

Yes bonds appear expensive, which should mean lower and possibly more volatile returns in future, but historically they have been a good counterbalance to equities. Also if the market is efficient future interest rate movements are in the market.

The problem with going for an active bond fund is past performance isn't a fantastic guide to future performance, and while it makes sense to look at Strategic Bond funds I can't think any that have been through a bond crash and worked through it - so you may well pick one which does below market.

Correlations move all the time and are not constant, so look for a portfolio you feel comfortable with and go with it. There are loads out there and simple portfolio's often give pretty good results (APCIMS for example) or go for a Vanguard, Blackrock or HSBC managed passive (which 'actively' manage index funds).

Alternatively if you want to go active look at Jupiter or Cazenove/Schroders multi manager funds. I use a Bestinvest managed active option for one of my pensions.

gadgetmind

Sobryma wrote: »

You are trying to overlay active decisions on passive portfolio, i.e. trying to time a market or believing you have some edge or insight.

I do exactly the same. This isn't because I have some particular edge but because I do think it's possible to identify asset types and territories where emotion has overdone either the buying or the selling.

For example, a lot of income assets are currently in demand. I particularly notice this with some of the infrastructure funds I hold as these are on double digit premiums. I haven't reduced yet, but will soon. On the other hand, miners are heavily over-sold, and ITs that specialise in these are on tempting discounts.

Back when credit was crunchy and Greece seriously wobbling, I dipped into bank preference shares, European ITs, and particularly commercial property in Europe.

I don't overdo these "tilts" and still hold "a bit of everything" but tend to move in the opposite direction to the thundering herd.

As for bonds, I've held SLXX and ISXF for many years (the later to "dilute" my direct bank paper exposure) but was mostly out of gilts as the 15yr yield rose from 2% to 3.2%+. I'm now dipping back in.

Sobryma

gadgetmind wrote: »

I do exactly the same. This isn't because I have some particular edge but because I do think it's possible to identify asset types and territories where emotion has overdone either the buying or the selling.

I can understand that as an approach, almost a core and satellite, but know yourself.............and I know if I tried similar I would chopping and changing left right and centre.

kidmugsy

Dudley05 wrote: »

I guess it is the fact that trouble ahead for bonds seems almost certain ...

Aye, but the question is when. How long have interest rates been low in Japan? How far have Japanese property and equity prices tumbled since their peak in 1991? Did bonds provide protection in Japan?

How can you be confident that we won't become a second Japan? Or worse?

Sobryma

Take your own view, but western economies are not that strong, debt levels continue to grow, banks are still recapitalising, asset values are distorted. The driver on governments is to keep juggling and hope we don't drop a ball.

It is more difficult than ever to know which asset classes offer value or risk assess them.

Sobryma

The argument for bonds as an asset is they are the last line of defence - if governments/companies collapse then value of any investments are the least of our worries.