Best bond funds.

Kendall80

I thought I'd finally settled on my portfolio but then I started reading more into bonds. Turns out my vanguard UK Gvmt tracker isn't a great option.


So I'm looking at the following but any advice/experience regarding other funds would be most welcome;


Schroder long dated corporate bonds acc


Jupiter strategic bond fund acc


Axa Framlington managed income acc


Pimco GIS UK corporate acc

bowlhead99

Kendall80 wrote: »

I thought I'd finally settled on my portfolio but then I started reading more into bonds. Turns out my vanguard UK Gvmt tracker isn't a great option.


So I'm looking at the following but any advice/experience regarding other funds would be most welcome;

For any portfolio to be effective you need a range of holdings, which means holding more than one type of fund or perhaps a 'strategic' one which invests across bond sub sectors and varies the mix at will. Some government bonds are OK but you wouldn't want a gilt tracker to be your only exposure to fixed income.

In the strategic sector I quite like M&G Optimal Income which has a very decent track record. I don't hold any of the specific ones you mentioned.

dunstonh

Turns out my vanguard UK Gvmt tracker isn't a great option.

Why not?

Looking at your alternatives, you dont appear to be looking at like for like assets. UK Govt bonds are different to UK corporate bonds.

Plus, your potential alternatives dont carry similar risk ratings. For example, the AXA Framlington fund is much further up the risk scale than the others. How will this extra risk reflect on your overall portfolio? Will you be reducing the allocations in the higher risk end to reflect the risk adjustment at the lower end?

Kendall80

dunstonh wrote: »

Why not?

Looking at your alternatives, you dont appear to be looking at like for like assets. UK Govt bonds are different to UK corporate bonds.

Plus, your potential alternatives dont carry similar risk ratings. For example, the AXA Framlington fund is much further up the risk scale than the others. How will this extra risk reflect on your overall portfolio? Will you be reducing the allocations in the higher risk end to reflect the risk adjustment at the lower end?

I have property funds (uk and global), cash in current accounts and the vanguard uk gvmt bond as my 'risk reducers' The bond fund itself is allocated 5%.


The M&G fund mentioned by Bowlhead does seem a good option similar to the Jupiter strategic in performance although the latter seems to have greater global coverage and is an order of magnitude smaller in fund size.


I have compared like-for-like bonds in that I added other index comparators to the graph and the vanguard fund seems to underperform relative to those and indeed the IMA sector.


There is a low cost blackrock tracker I'm also considering which would be an improvement.

dunstonh

I have property funds (uk and global), cash in current accounts and the vanguard uk gvmt bond as my 'risk reducers' The bond fund itself is allocated 5%.

Are the property funds property share or physical property? (again noting that the property sector can range from moderately cautious through to high risk).

The M&G fund mentioned by Bowlhead does seem a good option similar to the Jupiter strategic in performance although the latter seems to have greater global coverage and is an order of magnitude smaller in fund size.

It is a well regarded fund. However, it is several notches up the risk scale compared to the Vanguard fund. If you are using the Vanguard fund as a risk reducer, then switching it to a higher risk fund will increase the overall profile of your portfolio.

I have compared like-for-like bonds in that I added other index comparators to the graph and the vanguard fund seems to underperform relative to those and indeed the IMA sector.

The IMA sector does not measure risk and you have many different investment strategies in there. You have some very low risk options in that sector and some high risk ones.

The reason you often get performance differences is down to the level of risk that fund is taking. In good periods, the riskier funds tend to outperform the cautious ones. And the reverse in negative periods. This is one of the reasons you cannot use performance without knowing the context. I just did a quick look at the risk profiling we have of corporate bond funds (that passed our due diligence) and on our 1-10 scale, the funds ranged from 2 to 8. The UK Govt funds came out between 2-5.

When building a portfolio using sector allocation or asset allocation, the weightings are influenced by the risk of the funds you use. If you use high risk assets for a sector, this will usually result in the weighting for that sector (and other sectors) to be adjusted to compensate.

Kendall80

dunstonh wrote: »

Are the property funds property share or physical property? (again noting that the property sector can range from moderately cautious through to high risk).


QUOTE]


My property funds are the L&G UK feeder and the Blackrock global prop. sec. equity tracker. The latter displays much more volatility but was added for diversity.


Regarding the bonds, there does seem to be a degree of context I am missing despite my research. The vanguard uk one is, despite years of very low performance, suddenly rising quite rapidly. The growth of the actively managed bond funds in contrast seems to be plateauing. Some geopolitical effect perhaps?


I certainly need to read a little more into this before making a call. Its a portfolio for a 20 year+ investment so no need to rush things.

dunstonh

My property funds are the L&G UK feeder and the Blackrock global prop. sec. equity tracker. The latter displays much more volatility but was added for diversity.

So, you have one relatively cautious property and the other very high risk (possibly one of the highest risk funds you have in your spread). So, there probably isnt much risk reduction there.

The vanguard uk one is, despite years of very low performance, suddenly rising quite rapidly. The growth of the actively managed bond funds in contrast seems to be plateauing. Some geopolitical effect perhaps?

Different underlying assets favouring the funds differently at different times.

kidmugsy

If you want to invest in corporate bonds I can see the point of a "fund", but not for gilts. Surely it's better just to hold a gilt, or a ladder of gilts. That way you are assured of the capital and income you are going to receive, and you avoid fund charges too.

Kendall80

dunstonh wrote: »

So, you have one relatively cautious property and the other very high risk (possibly one of the highest risk funds you have in your spread). So, there probably isnt much risk reduction there.

The reduction in risk is not of huge importance just now as the investment is to run for a minimum of 20 years, max of 30. I wont mention my punt on global resources - oh!.


I intend to revise my allocations and funds as senescence takes its toll on my being.


I do always intend to hold a significant proportion of cash in the highest interest accounts available throughout the lifetime of the investment also. I've children to think of so I wont be locking everything away.


Just would like to get things right at the get go (only a few k in there at present) and this bond issue is the one last area of my portfolio I'm not entirely content with.

rpc

Kendall80 wrote: »

Regarding the bonds, there does seem to be a degree of context I am missing despite my research. The vanguard uk one is, despite years of very low performance, suddenly rising quite rapidly. The growth of the actively managed bond funds in contrast seems to be plateauing. Some geopolitical effect perhaps?

Different assets do well at different times (and gilts are not the same asset as corporate bonds). If you had a crystal ball, you could time the market and switch asset allocation to always be invested in the best performing assets.

But we don't.

So you normally set your asset allocation and rebalance to maintain it. You don't know what tomorrow holds, so play dumb and maintain your asset allocation. Moving out of gilts and into corp bonds is changing that asset allocation. Fine if that is what you want to do, but if you continually react to every little change in relative performance then you'll probably end up worse off.

Linton

I hold a fair bit in Jupiter Strategic Bond because....

Generally bonds are a less volatile investment than shares, though with a lower return. They are useful as a diversification and for medium term investment needs. At the moment with interest rates being low, safer bond (eg Gilts) prices are high. If you had bought a bond for £100 that paid 5% interest, with current interest rates people would be happy to pay you a lot more than £100 for your bond. It is expected that when interest rates rise, bonds will drop in price. So are bonds a bad idea at the moment?

Two reasons why they may not be a bad idea:

- If interest rates rise slowly the fall in bonds may not be too serious taking into account the interest that is paid.
- Interest rates have been low for the past 5 years. They could stay low for the next 5 years. Plenty of time to get some short/medium term return.

With all the uncertainty Jupiter Strategic Bonds could be worth considering. With this managed fund the manager has the ability to invest in a very wide range of bonds and related derivatives. This is an area I know little about and would not want to spend the time looking into all the options so am happy to pay the manager to plot a way through the risks for me.