VLS results over last year shows still worthwhile holding bonds

Audaxer

I have just compared the Total Returns of the Vanguard LifeStrategy funds on Trustnet over the past year to date, and was surprised to find the best performer over that period was the VLS20 with a 9.5% Total Return compared to only 3.2% for the VLS100.

I know it is only over a year and that equities have had a bit of a hit in the last couple of days, but I am still surprised that a fund with 80% bonds has performed so well over that period. Some people have been saying for the last few years that it is waste of time holding any bonds in their portfolio, but these results seem to show it is still worthwhile including multi asset funds or bond only funds in a balanced portfolio. Do you agree? .

A_T

My holding in Vanguard UK Long Duration Gilt Index is up 25% in the last 12 months so yes I agree.

moneyfoolish

What is the reason for this good bond performance? All my savings are in interest paying current accounts, NSI Bonds, Regular Savers and Cash ISAs but the rates are getting lower and lower and I'm looking for low risk alternatives.

itwasntme001

Bit of a silly post. Over the last 3 years VLS100 has outperformed VLS20. Why do people pick and chose periods and come to some conclusion that bonds are still worthwhile?


None of this should really matter. Just chose what balance of stocks and bonds you want/need and go for it and stick with it long term.

MaxiRobriguez

Equity markets have been flat for a year, and investor confidence has waned after a poor December and reports of a slowing global economy.

People still want some yield though, so bonds have been bid up. The return isn't from yield but from capital appreciation.

Is it sustainable? Only if interest rates fall further. Given where we are, I think risk massively outweighs reward and therefore holding bonds this time round isn't going to balance out losses in equities - both will fall together when the sell off happens in earnest.

itwasntme001

moneyfoolish wrote: »

What is the reason for this good bond performance? All my savings are in interest paying current accounts, NSI Bonds, Regular Savers and Cash ISAs but the rates are getting lower and lower and I'm looking for low risk alternatives.

Rates are lower for a number of reason: low growth, low inflation, surplus capital, demographics (baby boomers retiring). In my view i think rates will stay low for decades to come.

moneyfoolish

Not a silly post at all. Many of us are of an age where it's dangerous to invest in equities and bonds are much lower risk which is why as you get older it's recommended that you move down the scale from VLS100 to VLS20.

itwasntme001

MaxiRobriguez wrote: »

Equity markets have been flat for a year, and investor confidence has waned after a poor December and reports of a slowing global economy.

People still want some yield though, so bonds have been bid up. The return isn't from yield but from capital appreciation.

Is it sustainable? Only if interest rates fall further. Given where we are, I think risk massively outweighs reward and therefore holding bonds this time round isn't going to balance out losses in equities - both will fall together when the sell off happens in earnest.

Don't agree. You could easily make the case of a sharp sell off in equities and further bond rally even in the long run. There are fundamental reasons for why bond yields have fallen so much and can stay low for a very long time.

Audaxer

itwasntme001 wrote: »

Bit of a silly post. Over the last 3 years VLS100 has outperformed VLS20.

I know that, and made the point that it was only a year. The point I was making is that bonds still appear to be useful. Many people have said there is no point of having bonds as they are having worse returns than cash. It just surprised me that the VLS20 showed such a high return, showing that bonds can have a positive effect in times of flat equity markets.

itwasntme001

moneyfoolish wrote: »

Not a silly post at all. Many of us are of an age where it's dangerous to invest in equities and bonds are much lower risk which is why as you get older it's recommended that you move down the scale from VLS100 to VLS20.

But you did not need this post to tell you that. Especially after the fact the bond yields have fallen so low. If you did then as an investor you have more problems and probably should have used an IFA.

MaxiRobriguez

itwasntme001 wrote: »

Don't agree. You could easily make the case of a sharp sell off in equities and further bond rally even in the long run. There are fundamental reasons for why bond yields have fallen so much and can stay low for a very long time.

I don't disagree that there is the possibility that bond rally can continue, I just don't think it's the most likely case, and I also think the rally is easily broken by a small unexpected increase in inflation, or central banks reducing balance sheets.

People seem to associate bonds as a means to balance equity risk or be a safe way of getting a yield slightly above bank rates. There doesn't seem to be a real consideration that bonds can lose capital value in certain scenarios. That puts me off as well as other things.