Aviva pension invested 100% in shares – bond diversification advice please

Mr_Dufray

I’d be grateful for advice, please. I have a modest Aviva stakeholder pension, total value around £110k. It is 100% invested in four globally diversified share funds. This has served me well in the last 4 years given sterling’s fall and the rise in US stock valuations. 

Given current high equity valuations I feel I should diversify further and buy bonds while prices are relatively good value. I probably won’t reach a 50-50 split between shares and bonds but I think a 30-70 distribution split might be realistic.

I was wondering if anyone had suggestions of bond funds to look at, possibly within the Aviva ‘wrapper’. I am 53 so 14 years to retirement.

Currently my pension is divided into:

• Liontrust Sustainable Future UK Growth 30%
• Liontrust Sustainable Future Global Growth 30%
• Liontrust Sustainable Future European Growth 18%
• Blackrock US Equity Index Tracker 22%

The total charges for all these funds are around 0.5% a year – not bad.

With many thanks for any thoughts.

Mr D

bowlhead99

If you are using the Aviva stakeholder product the choice of funds is deliberately limited compared to all the bond funds available in the market.

They have some bond funds that are specialist to hold a particular type of bond, e.g. Aviva's own gilt fund, long gilt fund, corporate bond fund, international bond fund, or the Liontrust Sustainable Future corporate bond. They have other funds which give the manager the strategic choice to use different types of bonds to achieve the objective (e.g. their Managed High Income). But if you aren't actually seeking an income there is perhaps limited use in using a fund that's targeted to get one.

Some would take issue with the concept 'buy bonds while prices are relatively good value' given that bonds are coming off a 30-40 year bull run and their values have been significantly inflated by quantitative easing and historically unprecedented low interest rates over the last decade.

I probably won’t reach a 50-50 split between shares and bonds but I think a 30-70 distribution split might be realistic.

I'm guessing you didn't mean to word it that way round to mean 'split between shares and bonds', ' a 30-70 distribution' which at face value means  only 30% shares and 70% bonds. Given you are already at 100% shares that seems a long way in the other direction. So perhaps you mean 70:30 shares:bonds.

One thing you could consider is using their off-the-shelf mixed asset funds which blend together equities and other asset classes such as various types of bonds - then you don't need to manage the bond component so much yourself. For example 'Aviva Pension Blackrock Consensus S2' would only be about 70% equity and less 'gung ho' than your various equity growth funds.

If you intend to look beyond Aviva and consider investing in more complex products than stakeholder funds where you have a much greater choice of underlying investments (e.g. a self invested personal pension) then the world is your oyster but then it is pretty difficult to make any recommendations of 'bond funds to look at' as there are literally thousands and it depends what your objectives are and what you actually know about bond funds and how to make decisions on portfolio construction.

I personally avoid bond index tracker funds because my own objectives may not be the same as the average bond investor on the planet (such as a large public sector pension fund forced to hold billions of dollars of bonds because they can't put their cash in a high interest savings account). However if you are only looking at it simplistically as 'bonds are safer than equities' and don't actually have a well-articulated objective, it is hard to say that a certain fund is the 'wrong' choice ... because there is nothing to hint at what is the 'right' choice  - because there is no objective other than 'don't lose as much money as my equities fund in a market downturn'.  You may be better served sticking to multi asset funds where the decisions on portfolio construction are taken by the manager based on whatever objective or external influences he has, rather than trying to figure it out for yourself.

jsinc

Not advice but can check the Stakeholder options here:

https://www.fundslibrary.co.uk/FundsLibrary.BrandedTools/AvivaConsumer/FundCentral

Select the Pension tab, then 'Aviva Stakeholder Pension (SM Policies)' dropdown option

Albermarle

Some would take issue with the concept 'buy bonds while prices are relatively good value' given that bonds are coming off a 30-40 year bull run and their values have been significantly inflated by quantitative easing and historically unprecedented low interest rates over the last decade.

For the OP based on the comment above  , and reading other threads/info, some  investors seem to be more favouring cash as at least a  part  alternative to bonds . Not necessarily within a pension ( where cash usually has a near zero or zero return ) but outside the pension in a savings account, where it will earn interest only a little below the current low inflation rate .

The worry is that if equities crash , bonds might follow them .

Mr_Dufray

Thank you very much for all this advice, particularly Bowlhead’s v thoughtful breakdown. 

First, yes, I do mean a 70:30 equity and bond split. I will take a close look at the Aviva Pension Blackrock Consensus S2 suggested by BH. Yes, I’m NOT seeking income. I want to keep in the market for as long as possible, hopefully with compound interest doing its bit to help.

I agree that the ‘wrong’ vs ‘right’ choice is v hard to call. My impression was that bonds were looking good value compared to stocks – but I am poorly informed. Given the heady stock market valuations, particularly in the US, I thought an inverse was safe to assume. Clearly not. 

I’ve considered a SIPP but the money invested is modest and I am satisfied with the 0.5% annual charge and the access to the Liontrust funds (the Liontrust Sustainable Future Global Growth fund has performed particularly well).

Thanks again for all this feedback. 

Mr D