How to Diversify in current climate

itwasntme001

Thrugelmir wrote: »

Correct. However the fund will treat the stock as yielding 7% on a distribution basis. Not the 1% if held to maturity. As time passes the market value will decrease.

Agree which makes the 5% yield quoted against the fund in question very misleading to the naive investor. So yes i do stand corrected that the fund does not have to have junk bonds. But then it is back to the question of which bond funds provide decent yield taking into account the "pull to par".

itwasntme001

Thrugelmir wrote: »

If you wanted to buy some riskier stock at a discount to nominal and obtain a decent return to maturity. Then you'd need to consider Wasps, Provident Financial, Burford Capital and the like.

I am not Neil Woodford

bostonerimus

itwasntme001 wrote: »

The problem is your rules feel like they work given past performance so it is easy for you to say just blindly buy into a particular stock/bond portfolio split in a passive way.

It may work out in 10, 20, 30 years. Or it may not. Key determinant of actual performance is at what prices you buy in at. Always has been. You could argue easily that it is a good time to stock up on some cash and wait for a correction just as easily as you can say its all about time in the market. We will not know which is the correct approach in hindsight and either one could be devastating to one's wealth in the long run.

So nothing's changed.

I've been hearing exactly your comments for the past 30 years. We simply don't know the future and so we have to plan using our best judgement given past and present day data. I hope to have at least another 30 years of investing ahead of me and I'm going to keep doing what's work for me for the last 30. I don't have anything to lose apart from money and "love of money is the root of all evil" so I say let the financial gods do what they will. In the end we are only financially independent when we stop worrying about money.

chucknorris

itwasntme001 wrote: »

Which bond funds are beating inflation?

I have sold some equities recently as i was heavily invested. Parked this cash into savings account paying 1.2% interest. Suddenly that looks more attractive then all other alternatives.

I have now invested most of my equity from the sold investment property, approx 15% each into 2 bond funds which were :

iShares II Plc (IHHG) yields approx 5.6%
iShares VI plc (GHYS) yields approx 5.13%.

Plus approx 60% into an individual corporate bond (EI Group plc 6.875% Secured Bonds 2025) yields approx 5.75%

The EI yield is based on holding to maturity (looks unlikely now though).

I needed to hold some cash back for my January tax payment and also just in case the other property does not sell, in which case I will refurbish it, and then consider holding or selling.

EDIT: From a financial point of view I would much rather have left it invested in property, but from a lifestyle point of view I did not want to do that.

bowlhead99

chucknorris wrote: »

I have now invested most of my equity from the sold investment property, approx 15% each into 2 bond funds which were :

iShares II Plc (IHHG) yields approx 5.13%
iShares VI plc (GHYS) yields approx 5.6%.

Plus approx 60% into an individual corporate bond (EI Group plc 6.875% Secured Bonds 2025) yields approx 5.75%

The yields are based on holding to maturity.

How do you get approx 5.6% yield from GHYS, 'based on holding to maturity'?

Per the September factsheet the portfolio's weighted average YTM was 4.85% and was 4.22 at October . Likewise IHHG at 5.52 YTM in the September factsheet showing on the HL website but updated to 4.85 at end of October on the iShares site

And then you would presumably need to take off the OCF, because you lose (e.g.) half a percent of the underlying yield of GHYS to running costs of the fund before you can get your hands on the income stream from the bonds.

Thrugelmir

Originally Posted by chucknorris

Plus approx 60% into an individual corporate bond (EI Group plc 6.875% Secured Bonds 2025) yields approx 5.75%

EI Group is subject to to an agreed takeover by the private equity backed Stonegate Group. Though the deal has been referred to the CMA. Only been 2 trades in the stock so far this year and that was back in April. In July when the takeover was announced the price of the bonds fell 10%. Hence the current attractive yield. If the acquisition does goes ahead then the bonds will be redeemed at nominal par value and delisted.

chucknorris

bowlhead99 wrote: »

How do you get approx 5.6% yield from GHYS, 'based on holding to maturity'?

Per the September factsheet the portfolio's weighted average YTM was 4.85% and was 4.22 at October . Likewise IHHG at 5.52 YTM in the September factsheet showing on the HL website but updated to 4.85 at end of October on the iShares site

And then you would presumably need to take off the OCF, because you lose (e.g.) half a percent of the underlying yield of GHYS to running costs of the fund before you can get your hands on the income stream from the bonds.

I had the yields the wrong way around (will be corrected in afew mins)
IHHG https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=3167ab93-2cc3-4a4b-a2b6-2ad23ca0cce5&user=nWil0Vpn687pGkwWW6BuRwFoqSNhXrsdcA2v0S2B72P2nnUuxv5TEF%2fbN6qySSUQ&r=1 states distribution yield 5.56% (I invested at a slightly lower price)

GHYS
https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=6a1c478b-4349-4ada-bb0e-0937475f267c&user=2c3VJCyTf%2fIzlTRnO%2bHDkfe0E8Kv0No5rn3cXjjFKd2VYruUYoORsxe84Mhh8xBS&r=1
States distribution yield 4.89% (I invested at a lower price)

I also cross checked this by the two previous dividends paid and applied this to the prices that I paid. When I said held to maturity I was referring to the EI group (although that now looks impossible).

chucknorris

Thrugelmir wrote: »

EI Group is subject to to an agreed takeover by the private equity backed Stonegate Group. Though the deal has been referred to the CMA. Only been 2 trades in the stock so far this year and that was back in April. In July when the takeover was announced the price of the bonds fell 10%. Hence the current attractive yield. If the acquisition does goes ahead then the bonds will be redeemed at nominal par value and delisted.

I didn't know that, I searched in vain to find out why that price drop happened, I obviously knew that there would be a reason. But hands up, it was a huge oversight, which I have to accept.

I have paid just under 103.1, so it looks like (given the timescales) that I will almost get out even in gross terms, but I will loose about 1.4% with tax on the interest, plus inflation, if the deal goes through on time. I obviously would like the CMA to hold things up or the redemption of the bond to drag out a bit, but probably not much chance.

EDIT: Thanks for the heads up Thrug, this morning I paid part of the (advertised) spread and sold back 40% of my holding, if I can get about the same price I will sell out completely.