Barclays Global Aggregate U.K. Government Float Adjusted Bond Index

puk999

Looking for information on the Barclays Global Aggregate U.K. Government Float Adjusted Bond Index.

I Googled which led me to index.barcap.com though I couldn't find any information there.

I'm interested in the method behind choosing the constituents of the index, what the average maturity is, and why it's got "Global" and "U.K." in the name. In fact, as much information as possible would be welcome. I'm thinking of buying the Vanguard U.K. Government Bond Index Acc which tracks this index.

bowlhead99

When Barclays took over Lehmans during the credit crunch they acquired and rebranded the 'Global family' of indices. The Global Aggregate is made up of a few components (US aggregate, Pan-European Aggregate, Asia-Pac aggregate and some other ones). Each of the sub indexes is built to confirm to the rules of the main 'Global Aggregate' structure that it feeds into. For example each type of security to qualify for one of the indexes must have at least a year until maturity, must be investment grade, must have a certain size in issue (over EUR 300m in issue within the Pan European part of the universe, USD 300m for US bonds) and so on.

You can see an overall map of their 'multiverse' on page 21 of this document (pg 22 of the pdf) with some further detail specifically on the Global Aggregate criteria on pg 35 of the pdf. The document sets out the various universes within which the Barclays bond indexes are built.

But basically what you're looking at with this particular index is a market weighted index of UK government fixed income securities. Sterling denominated as I don't think the UK govt has any foreign currency bonds in issue any more.

Like many indices, it's 'free float adjusted', in other words it goes by market capitalisation but only to the extent that the securities are liquid and are actually floating around available to be bought - e.g. if there is a £0.5bn bond issue of series A maturing in 2024 and a £2.0bn bond issue of series B maturing in 2032, but the government holds half of the series B so that only £1.0bn is ever available on the markets to be traded, then the index will be weighted twice as heavily to type B as type A, not four times.

The second page of the Vanguard factsheet here https://www.vanguard.co.uk/uk/mvc/loadPDF?docId=2048 shows you there are about 60 different bonds in the index, average maturity about 15 years, average duration about 10 years, average yield to maturity about 2.4%.

puk999

Really appreciate the reply bowlhead99. I've looked at the Vanguard link you posted but not yet the Barclays' one (will do tomorrow when I have more time).

I'm looking for a cheap bond tracker fund which is available on FundsNetwork to diversify from my equity holdings. My thoughts are to disregard the Vanguard fund because the average maturity is in the intermediate time frame. I believe I would be better off with average maturity in the short term (ideally < 5 years). My rationale is that interest rates can only go up.

Does this rationale sound reasonable, and does anyone know of such a bond fund on FundsNetwork?

masonic

The FTSE UK 1-5 Year Gilt Index had average returns of sub-1% over the past 3 years, with a negative return from June 2012-June 2014 (although it picked up a little after that). You might be better off just holding cash with no return. Why not go for a strategic bond fund like M&G Optimal Income?

puk999

I considered a strategic bond fund but have decided to seek low cost short term bond trackers; one for UK government and the other for global corporate bonds. My ISAs are with Fidelity so something on FundsNetwork would be simpler. Not keen on the idea of holding cash at 0.1% interest rate (Fidelity's current rate).

bowlhead99

Short dated gov't bonds in many countries are producing negative returns in real terms, before you consider manager fees and platform fees. Might be marginally better than a money market fund but not several percent. At the end of the day there isn't a huge amount in it if you're looking at short dated gilts vs cash ( rather than slightly more risky corporate bonds vs cash).

The key thing is that they both serve the same purpose - insulate you from equity losses while losing a small amount to inflation.

Are your fundsnetwork assets inside a sipp wrapper? If they're in an ISA or unwrapped you could literally move them off platform and into a bank where you can get many multiples of the fundsnetwork "uninvested cash" rate, with zero risk.

puk999

The assets are in an ISA wrapper. I hadn't thought about moving them out of the wrapper and into a bank. Something to think more about. My immediate thoughts are to keep them in the ISA in case my future view (e.g. 5 years from now) is to not hold any bonds. I can then simply switch to equities within the ISA and have no tax issues.

I am currently contributing to ISA and hope to use up allowance each year going forward which means I won't have spare allowance to move the cash back into the ISA if I wanted to be more heavy on equities (or property, etc).

I have TSB accounts filled and Nationwide Flex Direct partially filled.

Perhaps I should reconsider the strategic bond fund route? M&G Optimal Income at 0.91% OCF/TER seems pricey* and according to TrustNet there's 28.5% of high yield bonds in there. AIUI, they will be correlated to equities (i.e. when stock markets are in pain, these issuers are more likely to fail to meet their debt obligations) and I'm looking to be diversified. The PDF from end of August shows a maturity breakdown on page 2. This shows over 40% with maturity > 7 years. In this low rate environment (where rates can only increase) I thought it better to be in short-dated bonds (if bonds at all). One would expect the fund manager knows what he's doing though so it probably makes sense if you know more about these things!!

* Fidelity offer the M&G Optimal Income I Acc which I can't see listed on trustnet. Is this the share class that would be available on most retail platforms?

bowlhead99

Wasn't necessarily suggesting taking the assets out of the ISA wrapper if you won't have capacity to top them up again. Taking them out would give you the option of more high interest current accounts of course. But you could simply transfer available Fundsnetwork cash to a cash ISA with a bank or BS and then back again later. This wasn't possible with cash ISAs and s&s ISAs having strict rules in the old days, but since July it's possible to transfer back and forth between types.

Then you'd know you were going to get your 1.x% without worrying whether the gilt yield would be negative, without losing ISA status. You could even go for a higher interest fix and be willing to break it and sacrifice an interest penalty if you felt the time was right to dive back into equities.

Re: Optimal Income the clean-priced Class I Acc would show up as Inst Acc on trustnet (rather than class R/Retail). That's the one I have (Sedol starts B1H05....)

Optimal Income has a great track record compared to its peers (if you look back beyond the standard 5yrs on trustnet, you'll see they handled both the 08/09 crunch and the 2011 dip very nicely), but no guarantees of course; we are in somewhat unusual times for bonds compared to last couple of decades and you can't expect them to get it right every time, especially as you can see the sector isn't exactly brimming with nice safe options!

puk999

I see what you mean now about transferring cash but keeping it in the ISA wrapper. Sorry for my confusion. Thank you for talking this through with me. I'll consider the choices over the next few days. I'm also thinking about moving from FundsNetwork to CSD (see thread here) so might simply go for LifeStrategy 80/20.

puk999

For now, I've transferred from my intermediate-term bond trackers into M&G Optimal Income. Longer term I will probably move away from FundsNetwork to allow me to get the Vanguard LifeStrategy 80/20 but I want to do some investigation about how the fixed income element of that is composed first. And evaluate platforms properly.

bowlhead99 wrote: »

Optimal Income has a great track record compared to its peers (if you look back beyond the standard 5yrs on trustnet, you'll see they handled both the 08/09 crunch and the 2011 dip very nicely)

This got me wondering what source(s) are good for looking at fund performance data > 5 years?

bowlhead99

puk999 wrote: »

This got me wondering what source(s) are good for looking at fund performance data > 5 years?

Most platforms, or the providers' own fund fact sheets only give 5 year data. Which is a real pain when you know without looking that both bonds and equities have been booming for those 5 years and you don't know how much of a downturn the individual fund was bouncing back from.

Trustnet is an example of one that gives more - simply add a fund to your basket, then 'examine these funds using FE trustnet tools' and select the charting option. If the fund's been running 15 years it will happily give you that, just select the exact dates you want. As it's generally been reliable / consistent with other sources I haven't looked much further. Morningstar will also let you get old data - not on the snapshot summary for each fund (just shows 10 yr annualised), but go into the fund and go into charting and you can run nice long date ranges.

With the advent of RDR and everyone launching clean funds, it's sometimes the case that whatever class you're looking at has only existed for a couple of years. So if you're trying to do a long term comparison you may need to pick the Class A instead of Class Z or R instead of I or whatever and just accept that the fees were a bit different in the old days. You also run into the problem that if you're trying to chart Fund 1 against Fund 2 and Fund 3, but Fund 2 was only launched in 2007, the graph at Trustnet will only go back to 2007 to rebase its graph at a point where it can get all the data on the same day. If you remove Fund 2 from your basket or uncheck it on the graph legend, it will then give you the other funds back to the 90s.

I'm sure all these places will not guarantee the data and in the small print say it's not to be relied upon and not for commercial use - but in practice it works well enough.