Vanguard U.K. Gilt UCITS ETF VGOV

segovia

I probably bought Vanguard U.K. Gilt UCITS ETF VGOV at the wrong time, just before COVID hit us in mid-April, this fund nosedived like everything else. My other investments which are predominately Global ETF's has recovered well but not so the GILTS, still looking at a 6% loss. I am wrong in thinking that GILTS should be doing better given that interest rates are likely to be held a current low rate for a while?     

bowlhead99

Your dates may be confused - the 'nosedive' of about 10% was after it had risen rapidly over the first couple of weeks of March as stocks were falling a little, and then fell quickly between 9 March and 18 March, which was later recovered. The price today is £25.46. If that represents a 6% loss to you, you must have bought it at £27.1 or higher. However, VGOV has never closed the day above £27 in its entire history (it may have gone over slightly during a couple of days before falling back by market close) so you must have just been unlucky.   

It is a few percent lower than it was in mid April because as other markets are recovering, people prefer to hold those other markets than to hold boring 'safe' bonds, so people sell bonds. And in the last couple of days there have been world governments talking about maybe allowing a bit more inflation etc (e.g. US Federal Reserve chairman yesterday) and bonds are not attractive when inflation runs higher. The movements in VGOV seem quite reasonable. They will only do better if markets get spooked and everyone starts getting out of equities fearing a big depression or bad economic data from the UK.

When you say it nosedived 'like everything else', that doesn't really seem to be the case, as the maximum peak-to-trough drop during March even after the spike upwards to £26.75 on 9 March was only about 10-11%, while 'everything else' (such as UK or global equities indexes) dropped 30-40% before starting to recover. 

JezR

Gilt funds are typically a few percent off over the last month or so as yields have been rising from the bottom. However, they generally remain a few percent up over a six month period, ie from late February. They were quite volatile from mid March to mid April so you may as you indicate have bought towards the top of this particular fund.

Thrugelmir

Real rate of return on Gilts has been in decline for a very long time. Remember they ultimately offer a fixed rate of return to maturity. On what basis should Gilts be performing better?

segovia

bowlhead99 said:

Your dates may be confused - the 'nosedive' of about 10% was after it had risen rapidly over the first couple of weeks of March as stocks were falling a little, and then fell quickly between 9 March and 18 March, which was later recovered. The price today is £25.46. If that represents a 6% loss to you, you must have bought it at £27.1 or higher. However, VGOV has never closed the day above £27 in its entire history (it may have gone over slightly during a couple of days before falling back by market close) so you must have just been unlucky.   

It is a few percent lower than it was in mid April because as other markets are recovering, people prefer to hold those other markets than to hold boring 'safe' bonds, so people sell bonds. And in the last couple of days there have been world governments talking about maybe allowing a bit more inflation etc (e.g. US Federal Reserve chairman yesterday) and bonds are not attractive when inflation runs higher. The movements in VGOV seem quite reasonable. They will only do better if markets get spooked and everyone starts getting out of equities fearing a big depression or bad economic data from the UK.

When you say it nosedived 'like everything else', that doesn't really seem to be the case, as the maximum peak-to-trough drop during March even after the spike upwards to £26.75 on 9 March was only about 10-11%, while 'everything else' (such as UK or global equities indexes) dropped 30-40% before starting to recover. 

I paid £26.9875 on 9 March 2020

short_bread

In the short run, no one can predict whether gilts will go up or down, but you can predict the long term return very accurately by looking at the yield to maturity or YTM. Currently for VGOV it's 0.3%, and the maturity is 18.9 years. Subtract the fund OCF, the fund transaction costs (available on Vanguard's website) and your platform charges, and what you're left with is the average annual return you'll get over the next 18.9 years, so probably about 0%. It's unlikely that either UK or global equities will do that badly over the same time period, base on history.