Is it possible to invest in a Bonds Fund with low risk?

funguy

Dear All,


I have a random query that I apologise in advance if sounds silly :


I have a S&S ISA with Vanguard Lifestrategy which obviously comes with the usual risks of value going up and down. I also have a Cash ISA paying a minimal 1.5% or so but with no risk of loss (except inflationary).



Are there any such things as Bond Funds with say Vanguard or similar where the risks are low but you would almost be guaranteed a regular return of something higher than 1.5%? I appreciate Bond values can go up and down but there is usually a return from them unless the issuing company goes bust. I have heard of high yield bonds etc so is there a fund that invests in a variety of these to give a return somewhere between the Cash ISA rate and the potential of a S&S ISA?



Thank you for your advice/suggestions in advance and apologies again if this sounds silly....

Tom99

If you look around you will find some bond funds or investment trusts etc which only hold bonds with a low risk of default. You could expect to get above 1.5%pa return but that does not protect you from the value of the bonds falling because interest rates have gone up or are expected to go up.

tacpot12

funguy wrote: »

Are there any such things as Bond Funds with say Vanguard or similar where the risks are low but you would almost be guaranteed a regular return of something higher than 1.5%? I appreciate Bond values can go up and down but there is usually a return from them unless the issuing company goes bust. I have heard of high yield bonds etc so is there a fund that invests in a variety of these to give a return somewhere between the Cash ISA rate and the potential of a S&S ISA?

Thank you for your advice/suggestions in advance and apologies again if this sounds silly....

Basically no. All bond funds have a degree of volatility, and none have so little that you could say they were "almost guaranteed".

This is not to say that bonds are not worth investing in. Over the long term, a corporate bond fund would be expected to pay a return well above 1.5%, but no-one in their right might would guarantee this.

Albermarle

Probably a fund with mostly bonds but with say 20% equities would be the closest to what you are looking for . They are readily available and with low management charges . In theory should produce a small % ( one ?) over inflation over time , but not guaranteed of course.

bostonerimus

The risk with bond funds increases with their term...and is also dependent on the credit rating of the bonds. So if you want a low risk bond fund look for "short term bond funds", they will be less sensitive to interest rates and terms like "investment grade" for corporate bonds or go with gilts..

xylophone

https://www.trustnet.com/fund/price-performance/o/ia-unit-trusts?sector=O%253ASTERCOR&tab=fundOverview

might be worth a browse.

DrSyn

No, is the short answer to your post.

Think of it this way. Anything to do with money involves risk. Its just the type and size of the risk that varies.

The minimum risk is putting money into a bank or building society covered by the FSCS.
The best 5 year fixed = 2.75 %.

Once the safety of savings is left, you are in the realms of investing. This really is just a posh name for long term gambling. No one is going to guarantee any gamble you make.

Bond just means you are making a loan to a government or company. If that government or company cannot or will not pay you back, you have a problem. I remember when some high yield bonds where called “junk bonds”.


Here is an old article which may be of interest to you:-

https://www.telegraph.co.uk/investing/bonds/top-yielding-bond-funds-will-survive-interest-rate-rise/


There are different types of bond funds, with different yields but none is guaranteed. Look here:-

https://www.trustnet.com/fund/sectors/focus?universe=O&sector=O%253ASTERSRT


Vanguard Life Strategy has a fund that is 20% shares/ 80% bonds which might be of interest to you:-

https://www.vanguardinvestor.co.uk/investments/9235?intcmpgn=ls20_findmore_link

funguy

Thank you everyone for your information.


Would funds like the following which state they are fixed income be reasonable low risk areas? I appreciate any gains are not guaranteed.


U.K. Investment Grade Bond Index Fund
U.K. Short-Term Investment Grade Bond Index Fund


I also aprpeciate in a rising market bonds will do worse than equities. In the event of a downturn, i assume these sorts of bonds would perform a bit better?

Aretnap

High yield bond funds do exist. However high yield bond are high yielding because (in the market's opinion) the companies issuing them have a high risk of going bust. So a fund that invests mainly in them has a fairly high risk of significant capital loss, especially in an economic downturn. Potentially higher than the risk of a fund like VLS20, which invests in a mixture of low yield bonds, high yield bonds and equities.

At the other end of the scale the safest bonds would be short dated government bonds, which have very little risk of significant capital loss, and you can get funds which invest solely in these. However 1 year UK government bonds currently yield about 0.75% - so most retail investora would be better off putting money in the bank.

In bonds as in everything else risk and reward are correlated - so there's no free lunch to be had.

DrSyn

The Short Term Index Fund has on Trustnet a risk grade of 11.

https://www.trustnet.com/factsheets/o/jbvg/vanguard-uk-short-term-investment-grade-bond-index-acc-gbp


The Investment Grade Bond Index Fund has on Trustnet a risk grade of 40.

https://www.trustnet.com/factsheets/o/fpd5/vanguard-uk-investment-grade-bond-index-acc-gbp


Take a look what Tustnet shows about other funds in the sector. The performance tables here.

https://www.trustnet.com/fund/sectors/focus?universe=O&sector=O%253ASTERCOR


Tustnet also has a useful charting section to see how fund went up & down in price over time you might want to tryout.

https://www2.trustnet.com/Tools/

labp04

If you look on the Monevator site which is regularly recommended on these boards, you will see a system for developing your own guaranteed equity bond. Ok, it might mean that, at best, you only get out what you put in, but, given time, it might also mean that you make above the 1.5%. Good luck