Corporate Bonds

drakesdrum

HI all,
I would appreciate your advice on the following.Having parted company with my IFA,I am endeavouring to 'Bed and ISA' as many of my investment holdings to passive index funds as possible.This will obviously take some time to complete. One of the funds I currently hold from my time with my IFA is the M&G Strategic Corporate Bond Fund.

I would like to ask whether there are any suitable passive Corporate Bond Funds and also whether this type of asset class is strictly necessary in an investment portfolio ?

As I will be running my own portfolio,I would like to keep things as simple as possible.

I'm nearing retirement, and my asset allocation tends toward the cautious, and is broken down as follows:

20% UK equities,
20% Developed World Equities,
20% Index Linked Gilts,
20%Global Bond Index,
10%Corporate Bonds,
10% Commercial Property

Many thanks in advance.

coyrls

drakesdrum wrote: »

HI all,


I would like to ask whether there are any suitable passive Corporate Bond Funds and also whether this type of asset class is strictly necessary in an investment portfolio ?

Others will probably provide better answers than me to your other questions but yes there are passive Corporate Bond Funds. Some examples are:

Vanguard Global Bond Index Fund
Vanguard Global Short-Term Bond Index Fund
(both hedged to Sterling, which is what you usually want with a global bond fund)
BlackRock Corporate Bond 1 to 10 Year Fund
(Sterling only)

Linton

The Vanguard funds listed by Coyris are general bond funds with a strong US bias rather than specifically corporate. There is a Vanguard UK Investment Grade Corporate Bond fund which may be closer to what you want, although the M&G fund is more diversified with only 50% UK.

Under current circumstances I prefer corporate bonds to government ones as the returns are better. The current circumstances of concern are that with low bank interest rates bonds of any type are popular and generally priced high. With a "strategic" fund the manager is aware of these circumstances and has the freedom to adjust his investment strategy, perhaps moving to shorter duration, less volatile but lower return bonds if he is worried about falls in bond values. A passive fund must just follow the index.

So personally I would stay with the M&G fund and trust the well-respected manager.

ColdIron

I agree with Linton but one thing to be aware of is that, despite its name, the M&G Strategic Corporate Bond is not a strategic fund (GBP Strategic Bond) but a GBP Corporate Bond one. You might want to have a look at M&G Optimal Income which is. While there are obvious differences between the two, such as holding some sovereign debt, it is run by the same manager

drakesdrum

Linton wrote: »

The Vanguard funds listed by Coyris are general bond funds with a strong US bias rather than specifically corporate. There is a Vanguard UK Investment Grade Corporate Bond fund which may be closer to what you want, although the M&G fund is more diversified with only 50% UK.

Under current circumstances I prefer corporate bonds to government ones as the returns are better. The current circumstances of concern are that with low bank interest rates bonds of any type are popular and generally priced high. With a "strategic" fund the manager is aware of these circumstances and has the freedom to adjust his investment strategy, perhaps moving to shorter duration, less volatile but lower return bonds if he is worried about falls in bond values. A passive fund must just follow the index.

So personally I would stay with the M&G fund and trust the well-respected manager.

Thank you very much for your reply,most helpful

dunstonh

One of the funds I currently hold from my time with my IFA is the M&G Strategic Corporate Bond Fund.

I would like to ask whether there are any suitable passive Corporate Bond Funds and also whether this type of asset class is strictly necessary in an investment portfolio ?

Why would you want to replace that fund with a passive?
Why would you not include a corporate bond fund in a portfolio? (if you dont you leave out an asset class and increase the volatility of your portfolio)

20% UK equities,
20% Developed World Equities,
20% Index Linked Gilts,
20%Global Bond Index,
10%Corporate Bonds,
10% Commercial Property

Strange asset mix. Did you build that to match a volatility rating or is it random?

drakesdrum

ColdIron wrote: »

I agree with Linton but one thing to be aware of is that, despite its name, the M&G Strategic Corporate Bond is not a strategic fund (GBP Strategic Bond) but a GBP Corporate Bond one. You might want to have a look at M&G Optimal Income which is. While there are obvious differences between the two, such as holding some sovereign debt, it is run by the same manager

Thanks very much for your reply,food for thought !

drakesdrum

dunstonh wrote: »

Why would you want to replace that fund with a passive? Why not !
Why would you not include a corporate bond fund in a portfolio? (if you dont you leave out an asset class and increase the volatility of your portfolio)That is why I asked the question.



Strange asset mix.Why Strange? Did you build that to match a volatility rating or is it random?

No it is not random,asset allocation is a very subjective subject,what might be 'strange' to you could suit my requirements perfectly.

dunstonh

No it is not random,asset allocation is a very subjective subject,what might be 'strange' to you could suit my requirements perfectly.

it was the roundness of the figures that made me think it was not built to match a target. You rarely see any asset allocation have such round figures. Global bonds is not normally as high as that. Especially relative to corp bonds.

What target volatility are you aiming for? The sectors will get you so far but the actual funds you select could throw you higher/lower.

drakesdrum

dunstonh wrote: »

it was the roundness of the figures that made me think it was not built to match a target. You rarely see any asset allocation have such round figures. Global bonds is not normally as high as that. Especially relative to corp bonds.

What target volatility are you aiming for? The sectors will get you so far but the actual funds you select could throw you higher/lower.

I don't have the skill to concern myself with 'target volatility' I have constructed my portfolio based on simple information gleaned from The Monevator website and from several books I have read by Jack Bogle,founder of The Vanguard Fund. With regard to asking why I would want to replace the fund with a passive fund,according to Mr Bogle, costs matter and my M&G Fund's cost are high in comparison to an index fund.
Finally, whilst I'm sure it was not your intention,your tone came across to me as rather disdainful.Perhaps it is something you might like to think about when replying to people who have asked a question in a perfectly polite manner.

dunstonh

I don't have the skill to concern myself with 'target volatility'

Knowing the volatility of your portfolio and making sure it matches your needs is an important part of any portfolio build. You need to concern yourself with such things.

With regard to asking why I would want to replace the fund with a passive fund,according to Mr Bogle, costs matter and my M&G Fund's cost are high in comparison to an index fund.

Cost is secondary to investment selection. It is an important consideration but passives are not the answer to everything. There are some areas where passives are best. Some areas where managed is best. The M&G fund cost is not that high at all.

You are concerning yourself with differences of 0.x% a year in cost but not concerning yourself with volatility which could result in returns being +/- ten times the cost difference.

Finally, whilst I'm sure it was not your intention,your tone came across to me as rather disdainful.Perhaps it is something you might like to think about when replying to people who have asked a question in a perfectly polite manner.

Asking you why you think something helps us understand your train of thought. I see no indication of any tone in my posts.