DIY portfolio: Which one bond fund to buy longterm?

londoninvestor

pioruns wrote: »

Thanks. iShares one is not available on my iWeb,

It is in an unwrapped account, but oddly not in an ISA or SIPP.

https://www.markets.iweb-sharedealing.co.uk/shares-centre/etfs/detail/AGBP/IE00BF540Y54/0P0001C9YI

londoninvestor

pioruns wrote: »

I just need to fill the gap, for about 10% capital in bonds. I would use Vanguard LS 0% if it existed.

I suppose you could hold 12.5% VLS20 and 87.5% HSBC FTSE All World.

Compared to 90% All World + 10% single bond fund, that gives you a bit more breadth of bond exposure (by including inflation linkers, for example) at the cost of a slightly higher overall cost and a slight bulge towards the UK in your equity allocation.

londoninvestor

Linton wrote: »

Why have a set of global government bonds? If it solely low risk bonds why go outside the UK? Under current conditions wont the bonds effectively provide pure currency risk

The funds being discussed are hedged back to GBP. But the relationship the between FX forward curve and the foreign yield curve means the expected return from bonds issued by a foreign government that controls its own currency should be the same as a UK government bond - so you still get to the question "why not just invest in gilts?"

However, there's a paper from Vanguard here suggesting that a hedged global bond portfolio is still worth having, as it provides a similar return to a domestic bond portfolio, but with lower variance:
https://personal.vanguard.com/pdf/ISGGLBD.pdf

(I have to try not to get sucked into too much of a quanty rabbit hole here - although it's the sort of thing that interests me, I remind myself that the exact choice of bonds is unlikely to be very material to the return or risk of my largely equity-based portfolio...)

bowlhead99

londoninvestor wrote: »

However, there's a paper from Vanguard here suggesting that a hedged global bond portfolio is still worth having, as it provides a similar return to a domestic bond portfolio, but with lower variance:
https://personal.vanguard.com/pdf/ISGGLBD.pdf

Funnily enough, Vanguard have papers suggesting that pretty much all the products they are trying to sell are decent things to have in your portfolio.

Just my natural cynicism and not to detract from your points. I haven't read the paper, but: if you use a global portfolio but then hedge the fixed returns to your home currency you will get better diversification of credit risk, political risk, interest rate risk etc than only using bonds from one country, yet without adding a broad range of currency risk on top (mitigating such risk by paying the costs of hedging instead).

londoninvestor

bowlhead99 wrote: »

Funnily enough, Vanguard have papers suggesting that pretty much all the products they are trying to sell are decent things to have in your portfolio.

Indeed, though they don't really plug their own products in that paper, more the general approach.

What I would have liked to see more of though is comparison of different hedging methodologies. Using short-dated forwards (which is sort of what they imply they're doing in the paper) will have different properties to using a ladder of forwards which are in line with the cashflow profile of the bonds. The latter reduces your exposure to changes in the term structure of foreign yield curves, while leaving you more exposed to the term structure of the domestic curve. Which is better for risk and returns is an interesting question...