Corporate Bonds

Thrugelmir

drakesdrum wrote: »

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.

Due to the Central Banks Policies in recent years all assets classes are now closely correlated. The concern has to be what the future holds. No one knows that's the only certainty.

ikorodu

Jonbvn wrote: »

Overly insensitive?? Are you for real? Perhaps you should consider mumsnet?

Clearly sarcasm does not come over well in the written word!

In answer to your question, no I was not for real.

But I suppose that underlines how people can misinterpret what others write, especially on Internet forums.

xemeter

Linton wrote: »

Asset allocation has a far greater effect. Doubling the % UK equities and bringing in 20% property is a bit more than a minor change.

It wasn't 20% property, you're referencing your own mistake in post 26, OP stated 10%.


Some people confuse asset allocation with geographic diversification because there's only really cash, bonds and stocks. Anyway, assuming one had an total world equity index tracker, thus allowing the collective reasoning of all market participants to perform the allocation, if caeteris paribus, then the cheapest wins.

That is unless you think you have an edge over the market?

xemeter

Linton wrote: »

Again the funds do rather different things. The M&G fund deliberately changes its investing strategy based on a view of the high level economic situation. The corp bond index fund doesnt.

Bond investing is much more a science than equity investing as with bonds everything of importance is known and largely guaranteed (if one avoids junk bonds) until bond maturity. One doesnt buy bond funds for high returns but rather for stable growth. With that in mind, under current bond market conditions I would be much happier with a managed bond fund able and willing to play with maturity dates and risk/return ratios rather than one based simply on the largest debt.

Again, if one held a total world bond index fund it would contain all of the bonds in the M&G fund and would therefore consolidate all their gains too.

TheTracker

Thrugelmir wrote: »

Due to the Central Banks Policies in recent years all assets classes are now closely correlated.

Linton

xemeter wrote: »

Again, if one held a total world bond index fund it would contain all of the bonds in the M&G fund and would therefore consolidate all their gains too.

Yes but in different proportions. For example the M&G fund is 17% asset backed securities, the Vanguard fund is 9%. Good asset backed securites are safer, but lower return. The dates to maturity may well be different, though this data doesnt seem to be available. Looking at the effect on the funds performance the M&G fund has lower return over the past 3 years but also lower volatility. The trustnet risk score is 33 for the M&G fund and 40 for the Vanguard tracker. This puts the M&G fund at 39th out of 89 and the Vanguard fund at 11th in order of decreasing risk score.

So you need to decide why you are going for a strategic bond fund and which fund best meets your needs: lower charges by about 0.5% if you go for the I class M&G fund or lower risk.

Linton

xemeter wrote: »

It wasn't 20% property, you're referencing your own mistake in post 26, OP stated 10%.


Some people confuse asset allocation with geographic diversification because there's only really cash, bonds and stocks. Anyway, assuming one had an total world equity index tracker, thus allowing the collective reasoning of all market participants to perform the allocation, if caeteris paribus, then the cheapest wins.

That is unless you think you have an edge over the market?

Diversification includes for equities: geography, equity sector, company size and for bonds: investment grade, bond issuer, bond duration and no doubt other things as well. With a world market geography is becoming less important other than for its effect on sector allocation.

Its not about edge over the market. Its that one's aims could well be very different to those of the forces that really drive market prices. In particular volatility and a long timescale are important for many private investors, whereas they are of little relevance to the computer traders fighting to get a fraction of a % on a second by second basis.

And of course there isnt one market, there are many. If you really believed in just one market you would have perhaps 75% of your investments in bonds, the global bond market being much larger than the equity market, and around 50% of your equity investment in the US (based on 2010 McKinsey figures). Do you?

xemeter

Originally Posted by Thrugelmir View Post
Due to the Central Banks Policies in recent years all assets classes are now closely correlated.

TheTracker wrote: »

The Vanguard data table you've chosen cannot be used to show whether a correlation exists between the different categories.

Instead it shows a single data point; the max value within each category.

You would need a minimum of 2 data points from each of two categories to calculate a correlation coefficient.

If you head over to trusnet and compare the indices for developed market equity e.g. North America, Europe, FTSE All Share, FTSE World, you will see that they are highly correlated over periods of 3, 5 and 10 years. This is especially the case over the last 3 years where even the Nikkei 225 index appears to be showing more correlation.

kidmugsy

The world is well provided with ultra-sensitive souls, is it not?

"They should bloody grow up" my dear old Dad would have said.

bowlhead99

xemeter wrote: »

The Vanguard data table you've chosen cannot be used to show whether a correlation exists between the different categories.

Instead it shows a single data point; the max value within each category.

You would need a minimum of 2 data points from each of two categories to calculate a correlation coefficient.

Forgive my ignorance.

Each of the ten asset categories has fifteen data points. The values for 2000, 2001, 2002, 2003,...2014. Each category (uk equities, em equities, UK index linked etc) has fifteen data points showing the historic performance: the magnitude of the "up" or "down" in every year in series.

So it's a table with 150 figures on it, 15 data points each for the ten categories.

In what sense is that not "a minimum of 2 data points from each"?

Cheers