Bonds - still so confusing...

aroominyork

Point taken about property and maybe that's the next stop on the knowledge train! Do you know of any previous threads which give a good overview of the sector and the fund options within it?

This article chimes with much in this thread about bonds http://www.morningstar.co.uk/uk/news/128683/4-questions-to-ask-before-buying-a-strategic-bond-fund.aspx. The M&G fund seems to fit well but I'd like a second to spread the risk and would appreciate thoughts on other options alongside Jupiter.

Many thanks all - this has been very helpful.

chiang_mai

I don't know much about HL so perhaps they waive the 3% entry fee, dunno, but the fee exists and is displayed prominently on MS, TN and the FT..

Here's the fact page on the fund from the FT, they rate the credit quality of the bonds held in the fund as low and the fund in general likely to be influenced by interest rates changes. Those things are not to be confused with the fund risk that you refer to although they are one aspect of it.

https://markets.ft.com/data/funds/tearsheet/summary?s=gb00b1vmcy93:eur

In looking at fund managers: I like to look at their past performance and the performance of other funds they manage or have managed in the past. It's in that context that I don't view the subject fund managers performance as anything more than average. And I personally don't care that much about the so called alpha rating given to fund managers by Trustnet, my experience is that they can be very hit and miss and have more to do with advertising revenue than is desirable.

EDIT TO ADD: apologies that I hadn't seen BH's post before typing my reply, I wasn't aware of the entry fee treatment in the UK, not so in Asia. Points regarding FM performance also taken on board.

chiang_mai

The case against HY bonds as a hedge:

"Additionally, investors ploughing into high yield debt in the hopes of diversification are running a “dangerous investment strategy” as the asset class moves in the same direction as equities".

https://www.trustnet.com/news/764569/why-youre-wrong-to-dismiss-gilts-in-favour-of-high-yield-bonds?utm_source=Trustnet%20Newsletters&utm_campaign=1b9a06c247-20171012_Investor10_12_2017&utm_medium=email&utm_term=0_2314bd04ee-1b9a06c247-77275453

bigadaj

chiang_mai wrote: »

The case against HY bonds as a hedge:

"Additionally, investors ploughing into high yield debt in the hopes of diversification are running a “dangerous investment strategy” as the asset class moves in the same direction as equities".

https://www.trustnet.com/news/764569/why-youre-wrong-to-dismiss-gilts-in-favour-of-high-yield-bonds?utm_source=Trustnet%20Newsletters&utm_campaign=1b9a06c247-20171012_Investor10_12_2017&utm_medium=email&utm_term=0_2314bd04ee-1b9a06c247-77275453

For the average investor a high yield bond is oxymoronic. Bonds are supposed to provide the water to the whisky if equities, to steal a Tim hale ism, so investing in risky bonds defeats the object in the first place, it's not just the current crazy negative interest rate and qe obsessed economic era we live in.

aroominyork

bigadaj wrote: »

For the average investor a high yield bond is oxymoronic. Bonds are supposed to provide the water to the whisky if equities, to steal a Tim hale ism, so investing in risky bonds defeats the object in the first place, it's not just the current crazy negative interest rate and qe obsessed economic era we live in.

What do you mean the average investor? Do you mean only professional investors should mess with them? How do you feel about IFAs including HYBs in their ready-made portfolios? I also wonder whether they really should be seen as akin to equities - is that slightly hyperbolic - or maybe half way (ish) between cautious bonds and equities? It sounds a little extreme to suggest that they do not really have a role in the spread of investments.

chiang_mai

There's nothing defensive about a high yielding bond, so yes, they are akin to equities, Include them in a portfolio by all means but not as a risk counterbalance.to equities since their low or poor credit rated contents puts them at risk of default. From Investopedia: "The final warning is that junk bonds are not much different than equities in that they follow boom and bust cycles". http://www.investopedia.com/articles/02/052202.asp

aroominyork

chiang_mai wrote: »

The case against HY bonds as a hedge:

"Additionally, investors ploughing into high yield debt in the hopes of diversification are running a “dangerous investment strategy” as the asset class moves in the same direction as equities".

https://www.trustnet.com/news/764569/why-youre-wrong-to-dismiss-gilts-in-favour-of-high-yield-bonds?utm_source=Trustnet%20Newsletters&utm_campaign=1b9a06c247-20171012_Investor10_12_2017&utm_medium=email&utm_term=0_2314bd04ee-1b9a06c247-77275453

Thanks for this link, featuring an interview with the manager of a gilt fund who recommends investing in gilts.

chiang_mai

You've already had recommendations for high yield bond funds but without any supportive reasons why, other than now is the right time in the cycle, whatever that means. I thought the article I provided might at least allow some balance to that and from somebody actually in the business and prepared to see his words in print. If you can find a more convincing argument from any professional source, let's all take a look at it! Having said those things, I'm very happy to try and contribute towards helping answer your queries about bonds and other aspects of investments, but not at the cost of ingracious replies!

aroominyork

I did not mean to be ingracious but was pointing out that articles, or interviews with mangers of, funds in a specific sector surely need to be taken with more than a pinch of salt.

But your reply leads me into a related issue of how to assess sectors at a point in time. High yield bonds have done extraordinarily well over recent years due to a mix of macroeconomic factors which played to their strengths. They may have some risks akin to equities but they are presumably unlikely to continue accurately mirroring the ups and downs of equities over the coming years. So, when trying to construct a portfolio, how do you choose the right instruments for any given macroeconomic circumstance? For example, I might think that interest rates will rise more slowly than the market generally forecasts, that the UK economy will grow but at a slower rate than other Western countries, and that Sterling is unpredictable. If I am investing for 10+ years and have a moderate risk appetite, how do I turn my views into the right mix of instruments? This, I think, is where relatively inexperienced DIY investors can come unstuck - we try to pick good funds within sectors, eg by liking M&G Optimal Income because the manager did well in 2008, but there is a gap in our knowledge about how to match our hunches about the economic outlook to the most appropriate allocation between different instruments.

Whereas IFAs will invest your funds based on a series of questions to determine your risk appetite, I can imagine a questionnaire for novice DIY investors which also has questions about their views on the economic outlook (with plenty of space for 'do not know' answers) and then suggests the sectors in which they should invest.

coyrls

I would suggest forgetting any views that you have on the economic outlook when constructing your portfolio; the chances of you being ahead of the consensus and being able profit from your insight are minimal.

but there is a gap in our knowledge about how to match our hunches about the economic outlook to the most appropriate allocation between different instruments

[FONT=&quot]This is just another way of saying you want to time the market, which is not a good strategy.[/FONT]