Best bond funds.

bowlhead99

dunstonh wrote: »

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 underlying assets favouring the funds differently at different times.

Dunstonh is right. The various actively managed bond funds are holding different types of assets. Whether fixed sector specialists or strategic - the other funds you're comparing are not holding a standard cap-weighted basket of UK government bond funds. So, they will move up and down with the financial health of companies, country credit ratings, exchange rates, etc etc depending on what they hold.

The Vanguard fund went up 30% in three years to June 2012 from June 2009. It fell back a bit, bobbled up and down for a bit and was back to +30% by June this year. Now, it's nearer +40% as governments debate the merits of increasing interest rates and the market perception is that it could be another year before BoE hikes the base rate. So, for the moment, people are happy to hold the bonds or buy more of them, especially the case when equity markets rock a bit. This puts prices up and yields down.

Of course, 30% in 3 years or 40% in 5 years is not really sustainable in the long term for a government bond fund. So you would expect it to plateau or fall at some point, or certainly not keep the same upwards trajectory. But it is still safer than equities - if your equities tank it is unlikely that bonds will tank by the same amount, because everyone piling out of equities needs to go somewhere. If the market valuations of the equity of the companies in your corporate bond funds and strategic bond funds are falling, you would expect those corporate bond prices to be falling too - whether they are investment grade bonds or high yield / junk bonds; the companies' creditworthiness is perceived as less of a safe haven when the equity prices are falling left right and centre.

So while government bonds and corporate bonds alike are both correlated to interest rate movements they also have their own unique factors. And that's before you get into short dated vs long dated etc.

I mentioned I liked the M&G fund, it didn't lose too much in the last credit crunch and has done well since, and I am perhaps looking for more risk than someone older who keeps to safe Government stuff. It was more as a comparison with your Jupiter Strategic option rather than a government bond tracker. However, lots of things have done well in the last decade so you do need to understand the risk profiles of all of these funds better and look at long term charts and economics not just short snapshots, before deciding which ones help you achieve your goals.

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.

Agreed with that

talexuser

I had a few bond funds years ago when I started investing, and they balanced the trusts through down periods. But the growth was obviously less and I decided I could take more risks so swapped them and just kept Optimal Income which I have been happy with. Every time I update the spreadsheet I see "Monitor for interest rate rises" written next to it. So far no interest rate rises, and I don't think we will see significant rises for some years to come - assuming no other financial collapse.

TheTracker

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;


Schroder long dated corporate bonds acc


Jupiter strategic bond fund acc


Axa Framlington managed income acc


Pimco GIS UK corporate acc

What don't you like about the Vanguard UK Gov tracker? I think that might influence the answer.

You seem to have gone straight from a tracker in one asset class to managed funds. Have you considered trackers in related classes? Namely global bonds (hedged to sterling), inflation linked uk gov bonds, inflation linked global bonds. I am into vanguard uk investment grade bond. The returns of the funds others have mentioned look fabulous, but I'd worry about their coefficient when things tank, and after all that's why we hold bonds, to counter other-class volatility not through dilution of risk/return but through diversity of risk/return.

Kendall80

TheTracker wrote: »

What don't you like about the Vanguard UK Gov tracker? I think that might influence the answer.

You seem to have gone straight from a tracker in one asset class to managed funds. Have you considered trackers in related classes? Namely global bonds (hedged to sterling), inflation linked uk gov bonds, inflation linked global bonds. I am into vanguard uk investment grade bond. The returns of the funds others have mentioned look fabulous, but I'd worry about their coefficient when things tank, and after all that's why we hold bonds, to counter other-class volatility not through dilution of risk/return but through diversity of risk/return.

Yes I did compare other bonds in the same class also.


Up until very recently the Vanguard fund appears to have been underperforming. Although it has undergone a rise in recent weeks. Its probably worth letting it ride for a while.


The actively managed corporate bond funds mentioned do seem to mostly follow the same pattern as equities so yes I agree they may not be a counter to equity volatility.


I am comparing different gilts, trackers, inflation linked bonds etc now on CSD and trustnet. Not the most exciting bit of research I've ever done though.


As its early days, bonds aren't a large part of my portfolio right now so I've plenty of time to change tack if something isn't working out.

Linton

Kendall80 wrote: »

.....
I am comparing different gilts, trackers, inflation linked bonds etc now on CSD and trustnet. Not the most exciting bit of research I've ever done though.

....

Beware - dont just look at the past 5 years because this has seen a moderately steady increase in equity prices and unusually low interest rates which has strongly influenced bond behaviour. Suggest you look over 10 years to cover the credit crunch or longer to include the 2001 tech crash. Longer periods then 5 years are most easily examined in detail using Tools/Charting on Trustnet.

bowlhead99

Kendall80 wrote: »

Yes I did compare other bonds in the same class also.


Up until very recently the Vanguard fund appears to have been underperforming. Although it has undergone a rise in recent weeks.

According to Trustnet, the total return over 1,3 or 5 years is top 4 or 5 out of about 25 that they list in the IMA UK Gilts sector. So, that implies consistent performance or recent outperformance dragging it up to that top quartile position. If you then look at a chart against the IMA average for the 'UK Gilts' sector show it consistently ahead of the average; it doesn't seem to be a quick recent spurt in the last few weeks that delivered the good performance.

The figures from Vanguard show its current year-to-date performance to be about 7.5% after fees, vs the benchmark index it's trying to track of 7.6%. Annualised for the last 5 years it's about 5.4% vs 5.5% for the index.

So, it is doing a good job of being a tracker of the Barclays govt bond index it's trying to track. And tracking that index instead of making ongoing active choices has put it right near the top of the IMA UK Gilt sector. I don't see what is 'underperforming' about it over the last 5 years unless you're (perhaps unknowingly) comparing it to something else from a different asset class.

Linton wrote: »

Beware - dont just look at the past 5 years because this has seen a moderately steady increase in equity prices and unusually low interest rates which has strongly influenced bond behaviour. Suggest you look over 10 years to cover the credit crunch or longer to include the 2001 tech crash. Longer periods then 5 years are most easily examined in detail using Tools/Charting on Trustnet.

Agreed with that.

The problem with doing all your research on your platform provider's website is that in some cases the comparison tools are not as advanced but also they may not carry all the 'classes' of a particular fund. Often they will be offering new clean classes with slightly different fees but they won't back-fill the information as a pro-forma for what the old fund would have got with that different fee structure.

So, you can scan down the Foundation Fund list at CSD and pick Jupiter Strategic Bond I Fund, and it only gives you 3 years of data because the 'I' class has only existed since Sept 2011. It tells you nothing about how they weathered the credit crunch. Whereas if you use Trustnet you can see the 'other' version of the fund that launched in June 2008. Bit of a bad example really as June 2008 only covers part of the stock market decline and is still not nearly far enough back to judge a strategic fund on its strategy, but you probably see the point.

For example Jupiter European I Fund is also a new one since Sept 2011 but if you use Trustnet or Morningstar you can see Jupiter European Fund charts back to the late 1980s...