Are bonds worth holding?

Doglegger

Probably been asked many times on this and other forums but are bonds worth holding as part of a portfolio these day?. If I try to educate myself about these things I always come across some who don't rate them and advise on getting rid or don't invest in the first place.
Is holding everything in say VLS60 or 40 still a sensible thing to do for the next 10 years or so?

dunstonh

Is holding everything in say VLS60 or 40 still a sensible thing to do for the next 10 years or so?

If its appropriate for your needs then yes. If its not then no. We used to use VLS a lot of smaller investors but dont any more due to similar alternatives coming in more suitable. However, these would still be suitable. It's just that we feel the alternatives are more suitable (think of it using keep/buy/sell. We have them as a keep. So, anyone in them can stay in them but we would not put new money in them). This is just on our criteria. Others will feel different and given the small differences in all of them, it really doesnt matter that much at the end of the day.

We wouldnt use them for larger investors though.

If I try to educate myself about these things I always come across some who don't rate them and advise on getting rid or don't invest in the first place.
Is holding everything in say VLS60 or 40 still a sensible thing to do for the next 10 years or so?

I doubt you are getting that advice. Advice being a regulated thing. You are getting opinion from an unknown on the internet or a man down the pub.

Over the long term, bonds would be expected to have lower returns. Expectation and reality are not always the same thing though. Bonds are typically used to reduce volatility. If you can handle a 50% loss when the markets fall and can afford it, then there is no need to use bonds. If you feel you can only handle say 20% losses then you use fixed interest securities, cash and property to reduce the volatility to a level which would match your volatility objective.

Doglegger

dunstonh wrote: »

If its appropriate for your needs then yes. If its not then no. We used to use VLS a lot of smaller investors but dont any more due to similar alternatives coming in more suitable. However, these would still be suitable. It's just that we feel the alternatives are more suitable (think of it using keep/buy/sell. We have them as a keep. So, anyone in them can stay in them but we would not put new money in them). This is just on our criteria. Others will feel different and given the small differences in all of them, it really doesnt matter that much at the end of the day.

We wouldnt use them for larger investors though.



I doubt you are getting that advice. Advice being a regulated thing. You are getting opinion from an unknown on the internet or a man down the pub.

Over the long term, bonds would be expected to have lower returns. Expectation and reality are not always the same thing though. Bonds are typically used to reduce volatility. If you can handle a 50% loss when the markets fall and can afford it, then there is no need to use bonds. If you feel you can only handle say 20% losses then you use fixed interest securities, cash and property to reduce the volatility to a level which would match your volatility objective.

Yes,indeed, bad choice of wording there for this forum. Not regulated advice but the ramblings of those on the internet.
Thanks though Dunstonh, that helps me understand there's still a place for them.

nicknameless

dunstonh wrote: »

If its appropriate for your needs then yes. If its not then no. We used to use VLS a lot of smaller investors but dont any more due to similar alternatives coming in more suitable. However, these would still be suitable. It's just that we feel the alternatives are more suitable (think of it using keep/buy/sell. We have them as a keep. So, anyone in them can stay in them but we would not put new money in them). This is just on our criteria. Others will feel different and given the small differences in all of them, it really doesnt matter that much at the end of the day.

We wouldnt use them for larger investors though.

Are you able to elaborate further on the alternatives you use and rationale vs VLS?


No worries if not.


Many thanks.

dunstonh

Are you able to elaborate further on the alternatives you use and rationale vs VLS?

VLS is not risk targetted. The fixed weightings mean it moves around the risk profile when using stochastic modelling. For example, earlier in the year VLS20 had a higher risk score than VLS40 did nearly 3 years ago. From an adviser point of view that is a risk. Post MiFIDII due diligence requirements are much higher. A DIY investor doesnt need to care about regulatory issues as they are taking on responsibility.

For lower risk investors, the risk targetted funds would likely be better as you know the risk is more likely to stay within your chosen range. For higher risk investors, the risk level is not as important, so risk targetted funds may not be as important to you.

Also, post MIFDII cost disclosures bring VLS60 annual charges in at 0.33% pa. (0.22% OCF and 0.11 TC). So, when you compare it to say HSBC at 0.20% (0.18% OCF and 0.02% TC), then there are cheaper alternatives. There are some issues here with fund houses as Vanguard are showing their Ongoing Cost Ex-Ante as 0.22% (same as the OCF). Whereas others are showing Ongoing Cost Ex-Ante as OCF plus TC (such as HSBC at 0.20%). It is a bit messy but Vanguard appears to be underreporting their total charges.

StellaN

dunstonh wrote: »

VLS is not risk targetted. The fixed weightings mean it moves around the risk profile when using stochastic modelling. For example, earlier in the year VLS20 had a higher risk score than VLS40 did nearly 3 years ago. From an adviser point of view that is a risk. Post MiFIDII due diligence requirements are much higher. A DIY investor doesnt need to care about regulatory issues as they are taking on responsibility.

For lower risk investors, the risk targetted funds would likely be better as you know the risk is more likely to stay within your chosen range. For higher risk investors, the risk level is not as important, so risk targetted funds may not be as important to you.

Also, post MIFDII cost disclosures bring VLS60 annual charges in at 0.33% pa. (0.22% OCF and 0.11 TC). So, when you compare it to say HSBC at 0.20% (0.18% OCF and 0.02% TC), then there are cheaper alternatives. There are some issues here with fund houses as Vanguard are showing their Ongoing Cost Ex-Ante as 0.22% (same as the OCF). Whereas others are showing Ongoing Cost Ex-Ante as OCF plus TC (such as HSBC at 0.20%). It is a bit messy but Vanguard appears to be underreporting their total charges.

I agree, my husband holds the HSBC Global Strategy Dynamic in his SIPP portfolio mainly because it is more risk targeted, lower cost and in his opinion a more realistic UK allocation compared to VLS80 or indeed VLS funds in general.

I know most passive investors on this forum are big supporters of VLS, however, as you said, there are definitely other multi asset alternatives to consider.

Sue58

StellaN wrote: »

I agree, my husband holds the HSBC Global Strategy Dynamic in his SIPP portfolio mainly because it is more risk targeted, lower cost and in his opinion a more realistic UK allocation compared to VLS80 or indeed VLS funds in general.

I know most passive investors on this forum are big supporters of VLS, however, as you said, there are definitely other multi asset alternatives to consider.

As there are mainly small differences in the VLS and HSBC multi asset funds then as dunston mentioned surely it must come down to cost HSBC at 0.20% and VLS at 0.33%?

Audaxer

Sue58 wrote: »

As there are mainly small differences in the VLS and HSBC multi asset funds then as dunston mentioned surely it must come down to cost HSBC at 0.20% and VLS at 0.33%?

As far as I am aware the VLS funds have an OCF of 0.22% and HSBC Global Strategy funds have OCFs ranging from 0.17% to 0.21% depending on which version you choose. Both have had fairly similar total returns after costs.
Edit: just seen dunstonh's comment explaining the 0.33% and 0.20% costs include the transaction charges. Still total returns after costs are fairly similar.

I know the HSBC funds are meant to be more risk targeted, but the allocation percentages within the HSBC funds don't seem to change much, so I am not sure how closely they are actually 'managed'? I get the impression the L&G Multi Index funds may be more closely managed to keep within pre-determined risk levels.

Sue58

Audaxer wrote: »

As far as I am aware the VLS funds have an OCF of 0.22% and HSBC Global Strategy funds have OCFs ranging from 0.17% to 0.21% depending on which version you choose. Both have had fairly similar total returns after costs.
Edit: just seen dunstonh's comment explaining the 0.33% and 0.20% costs include the transaction charges. Still total returns after costs are fairly similar.

I know the HSBC funds are meant to be more risk targeted, but the allocation percentages within the HSBC funds don't seem to change much, so I am not sure how closely they are actually 'managed'? I get the impression the L&G Multi Index funds may be more closely managed to keep within pre-determined risk levels.

As StellaN mentioned there are many posters on the forum that won't accept anything else than VLS funds but I think you should always consider alternatives and the HSBC funds seem a suitable one.

Audaxer

Sue58 wrote: »

As StellaN mentioned there are many posters on the forum that won't accept anything else than VLS funds but I think you should always consider alternatives and the HSBC funds seem a suitable one.

Agreed, I have both as I think VLS60 and HSBC Global Strategy Balanced are good together if you want more than just one multi asset fund as the HSBC fund has less UK bias and has a bit of property. I'm just not sure how risk targeted the HSBC funds are.

I know dunstonh only uses multi asset funds for relatively small investors, but I think the fact that both sets of funds are well diversified and have low costs, they are also a reasonably good choice even for large investors.

MPN

Audaxer wrote: »

Agreed, I have both as I think VLS60 and HSBC Global Strategy Balanced are good together if you want more than just one multi asset fund as the HSBC fund has less UK bias and has a bit of property. I'm just not sure how risk targeted the HSBC funds are.

I know dunstonh only uses multi asset funds for relatively small investors, but I think the fact that both sets of funds are well diversified and have low costs, they are also a reasonably good choice even for large investors.

To hold both the HSBC and VLS funds seems a perfectly good strategy to me especially if you are a large investor.