Which Bond Fund

Linton

There is a prevalent view of bonds that their purpose is to protect the investor from the risks of equities which would lead to the bonds of choice being those issued by developed world governments, mainly gilts. One problem with that approach at the moment is that, arguably, cash does the job better.



I prefer to see bonds as simply another asset class to be held alongside equity. Just as diversification in equity is important one should also seek it in bonds. So one needs both government and corporate bonds. a range of time to maturity's, geographic spread, a range of risks and returns etc allocated to meet ones objectives.


Bonds are very different to shares in that their value is a mathematical certainty given basic economic data. Unlike shares you cannot hope for something special happening in the future to your chosen investment. For that reason, since I neither have appropriate software to unravel the mathematics nor access to the data, I need to use a Strategic Bond fund at least as a basis for my general bond investing. I use corporate and EM government bond funds for income as maturity dates and capital value movements are unimportant, the income you get in money terms being fixed as soon as you buy the bond barring currency movements and failures.

Audaxer

Linton wrote: »

I use corporate and EM government bond funds for income as maturity dates and capital value movements are unimportant, the income you get in money terms being fixed as soon as you buy the bond barring currency movements and failures.

Linton, if you are getting say 5% income on your original investment from these bond funds, is that bond income even more stable than equity income? I just assumed that income from bond funds may go down a bit if/when the value of the bond fund falls?

Audaxer

SonOf wrote: »

Most sector allocated models have little or nothing allocated to global bonds.

SonOf, I'm a bit surprised at that. Do IFAs not include global bond funds in their clients' portfolios?

I thought it was good to have a range of different bond funds for diversification purposes, so I recently purchased an active Global Bond Fund to add to my income portfolio. It seems like a good income fund to me and hopefully not too risky.

tin586

Audaxer wrote: »

Linton, if you are getting say 5% income on your original investment from these bond funds, is that bond income even more stable than equity income? I just assumed that income from bond funds may go down a bit if/when the value of the bond fund falls?

I hold VEMT (Vanguard USD Emerging Markets Government Bond UCITS ETF).

Yield is good.

Main risk concerns ‘emerging market’ sovereign and quasi-sovereign entities meeting USD obligations when their local currency is depreciating. Do your own research and decide your own risk tolerance!