SWIP High Yield Bond Rtl Cls A Inc GBP/corporate bonds

SallyG

If you were in this or similar:
SWIP High Yield Bond Rtl Cls A Inc GBP

which I believe is one and the same as this:
http://www.swip.com/private-investor/managers-and-funds/funds/swip-high-yield-bond-fund/performance/

and if you had had just read this:
http://www.moneymarketing.co.uk/news-and-analysis/bonds/fca-warns-on-corporate-bond-liquidity-risks/2012741.article

would you be looking for the exit?

dunstonh

No. Nothing has changed because the FCA has issued a liquidity reminder.

bowlhead99

Exactly. The FCA is reminding people of things they should already know but might have forgotten during the good returns of bonds and equities over the last five or so years.

"Other considerations the FCA recommends investors undertake include considering whether the return from such a fund will meet their investment objectives and what instruments the fund is investing in and if they are acceptable or too risky." Well: "No $h1t, Sherlock."

It's true that if market conditions are difficult, funds holding things that nobody wants could find it tricky to turn those things back to cash if someone wants to redeem. Real estate investments, shares in small companies, higher risk bonds - even investment grade corporate bonds - all the same concept, if the demand isn't there to meet the supply, things can get tricky. As a commenter on that link points out, in reality there are always buyers if you are flexible on price. But fund managers are reluctant to exit from assets in a fire sale scenario.

So if a manager has large holdings of illiquid bonds, your money may be trapped and may ultimately be worth rather less than it was when you put it in. Therefore you have to be careful not to think of a bond fund paying a percent or so interest as being pretty similar risks to a bank account. It is not, because capital is at risk and liquidity is not guaranteed.

Still, that particular fund you highlighted lost some money in the financial crisis and has then delivered a return of 70% over five years, so it is quite easy not to confuse it with a bank account which doesn't do either of those things (lose money some years and make double digit gains in others).

There is absolutely no reason to read the moneymarketing link and instantly go out and sell your high yield bond funds or your low yield bond funds or your equities funds or anything else. However, if you were previously unaware of all the different types of risks faced by your funds, it might be a timely piece of education - rather than merely the reminder that it would be, to other more experienced investors.

SallyG

Phew - thanks - I thought I might have to DO summat.

bowlhead99

Nah, you can just sit back and watch as it makes you 5% or loses you 20% or wherever the market does. If you want to avoid it crashing down in value, you might prefer to buy something else. However, this was true last week as it was last year and the year before that. Inevitably when it does go down in value you'll wish you had done summat, but you might have made enough money from it by then to not mind.

SallyG

Illuminating - thanks.