Thinking of UK Index Linked Gilts

[Deleted User]

I'm thinking of adding these to my savings. Do you have any? Why? Why not?

However, I thought that the UK gilts had a "Face value" of £100. Yet this fund is priced is £1.67? Is that an error?

https://www.fidelity.co.uk/factsheets/?id=F00000UEXM&idCurrencyId=&idType=msid&marketCode=

And why do you think the one above is priced alot less than the Vanguard equivalent?

https://www.fidelity.co.uk/factsheets/?id=F00000M0M8&idCurrencyId=&idType=msid&marketCode=


Also, if it says the average gilt maturity is 25 years, does the fund continue to buy NEW gilts, so that 25 year average maturity could continue, or does the fund not, so in 2030, the average maturity would be 14 years.

aldershot

Quick question, what do you think the yield is on index linked gilts at the moment?

Just asking to gauge your understanding of what they are ( not being rude or arrogant but genuine).

masonic

It's not an error. Prices have been driven up by the low interest rate environment and forced buying by pension funds and the like. (Edit: Redacted due to above post)

Fund prices are completely meaningless. It is just the price you need to pay to buy a unit in the fund, which depends on how many units there are.

Some funds will invest in bonds to within a maturity range, while others will simply buy the market, meaning the average maturity may vary. This information would be provided in the fund objectives.

[Deleted User]

aldershot wrote: »

Quick question, what do you think the yield is on index linked gilts at the moment?

Just asking to gauge your understanding of what they are ( not being rude or arrogant but genuine).

I may be COMPLETELY wrong (new investor) but what I see is:

From the Ishares one above priced at £160, looks to have an average maturity of 25 years and coupon of 1% (plus CPI).

Assuming inflation is 3% per year, you'd get £4 per year. £4/£160 = 2.5%. But you're paying £160 for it and are only going to get back £100 (face value).

I don't how to calculate it but it looks like you could actually lose money if you held till maturity.

masonic

now I can restate the redacted part of my post.

Owing to the prices of index linked gilts being driven up, yields are negative around -2% to -3% depending on maturity date. So if you bought some index linked gilts and held them to maturity, your return would be at best RPI minus 2%. Unless inflation gets a lot higher, you'd be better off in a fixed rate savings account which would deliver perhaps RPI minus 0.5%.

The fund price you are quoting is a complete red herring, it is merely the price of a unit in the fund, which buys you £160 worth of index linked gilts. For their prices and yields, use a site like this one:
https://www.fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3530&subgroupid=&sort=7#table

[Deleted User]

Great site,

I thought the bond funds were priced in line with the Face Value of £100.

The fact that they have a negative yield is quite scary.

masonic

newbinvestor wrote: »

I thought the bond funds were priced in line with the Face Value of £100.

Most bonds are launched with a face value of £100, so that's what the person who holds them at maturity gets back. But they trade on a secondary market for more or less than their face value depending on supply and demand. If you (or a fund investing your money) buys them for more than £100, then that is going to result in a capital loss unless you can sell them before maturity for more than you paid for them.

aldershot

Masonic has given you some helpful replies. To answer your original question, I don’t hold any IL funds as pension funds have been forced to buy the underlying bonds and this has pushed them to levels I feel are poor value for the rest of us.

Im pretty well 100% global equities and a bit of cash for liquidity.

A_T

Holding individual gilts and having a holding in a gilt index fund are two very different things.

[Deleted User]

Is there a calculator you know of to work out your return, if you hold to maturity? As the coupons could knockout the "premium" you paid for the bond

[Deleted User]

A_T wrote: »

Holding individual gilts and having a holding in a gilt index fund are two very different things.

Why?

Here is another bond fund (corporate) Priced at £0.52

https://www.fidelity.co.uk/factsheets/?id=F00000SXB4&idCurrencyId=&idType=msid&marketCode=


Absolutely nowhere does it say if it's trading at a premium or discount to the "face value". Very confusing.