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Best allocation across Cash, Bonds & Equities?

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Comments

  • AlanP_2
    AlanP_2 Posts: 3,540 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:


    Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
  • Linton
    Linton Posts: 18,368 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:


    Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    "Float adjusted" means that it only counts those bonds that are available on the market.  Bonds that are taken by pension companies to be held until maturity or by the Central Banks dont count.  Perhaps the institutions dont want the higher risk of the Italian bond so there is more available for the market.
  • AlanP_2
    AlanP_2 Posts: 3,540 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Linton said:
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:


    Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    "Float adjusted" means that it only counts those bonds that are available on the market.  Bonds that are taken by pension companies to be held until maturity or by the Central Banks dont count.  Perhaps the institutions dont want the higher risk of the Italian bond so there is more available for the market.
    Thanks.


    So is number 1 (Italian bond) the one that has the highest amount available to be invested in compared to the others i.e. is the index based on "amount being borrowed" from top to bottom?

    The interest rate they need to pay will reflect the perceived risk I guess (with Italian gov't bonds paying a higher interest rate than US gov for example). 
  • Linton
    Linton Posts: 18,368 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    edited 22 July 2021 at 9:50AM
    AlanP_2 said:
    Linton said:
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:


    Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    "Float adjusted" means that it only counts those bonds that are available on the market.  Bonds that are taken by pension companies to be held until maturity or by the Central Banks dont count.  Perhaps the institutions dont want the higher risk of the Italian bond so there is more available for the market.
    Thanks.


    So is number 1 (Italian bond) the one that has the highest amount available to be invested in compared to the others i.e. is the index based on "amount being borrowed" from top to bottom?

    The interest rate they need to pay will reflect the perceived risk I guess (with Italian gov't bonds paying a higher interest rate than US gov for example). 
    It is a market cap weighted index so I would take the basis as number of bonds on the market X current price.

     From a quick search: It seems there were at least 2 italian bonds issued last year at 1.85%.  The UK at much the same time was issuing bonds paying less than 0.5%
  • AlanP_2
    AlanP_2 Posts: 3,540 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Linton said:
    AlanP_2 said:
    Linton said:
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:


    Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    "Float adjusted" means that it only counts those bonds that are available on the market.  Bonds that are taken by pension companies to be held until maturity or by the Central Banks dont count.  Perhaps the institutions dont want the higher risk of the Italian bond so there is more available for the market.
    Thanks.


    So is number 1 (Italian bond) the one that has the highest amount available to be invested in compared to the others i.e. is the index based on "amount being borrowed" from top to bottom?

    The interest rate they need to pay will reflect the perceived risk I guess (with Italian gov't bonds paying a higher interest rate than US gov for example). 
    It is a market cap weighted index so I would take the basis as number of bonds on the market X current price.

     From a quick search: It seems there were at least 2 italian bonds issued last year at 1.85%.  The UK at much the same time was issuing bonds paying less than 0.5%
    Thanks again.

    So the overall value of all the bonds in that issue available to purchase across the globe.

    I guess the index has to have some basis and that may be the best one for "ranking" global bonds out of what could have been chosen, it's certainly easy for a computer and thus can be automated cheaply, but is it the best criteria for choosing investments?

    The "market" decides the price of each bond relative to another taking into account the quality of the issuer, the duration and the effective rate on offer (the Yield To Maturity).

    Wonder whether you end up with lower or higher YTM or lower / higher "risk" bonds at the top of the table?

    Hypothetical question, not expecting anyone to research it but will hopefully make those whose default position is to say "tracker for everything" to maybe give some thought to whether all those 14309 bonds are what they want to be invested in. 


  • NedS
    NedS Posts: 4,868 Forumite
    Sixth Anniversary 1,000 Posts Photogenic Name Dropper
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:



    		Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    This is no different to buying an equity index. You take the view that you do not have any superior knowledge to the rest of the market, so you just buy the whole market. I own a whole bunch of companies in my index tracker that I would never dream of owning individually, but if you buy a passive index tracker, that's what you get.
    Whether passive index trackers are a good idea for bond markets, I have no clue :-)

    Our green credentials: 12kW Samsung ASHP for heating, 7.2kWp Solar (South facing), Tesla Powerwall 3 (13.5kWh), Net exporter
  • Linton
    Linton Posts: 18,368 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    NedS said:
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:



    		Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    This is no different to buying an equity index. You take the view that you do not have any superior knowledge to the rest of the market, so you just buy the whole market. I own a whole bunch of companies in my index tracker that I would never dream of owning individually, but if you buy a passive index tracker, that's what you get.
    Whether passive index trackers are a good idea for bond markets, I have no clue :-)

    Bonds are nothing like equity.  They are much closer to fixed term savings accounts with a guaranteed term and interest rate.  But they have the added advantage that you can sell them at any time possibly at a moderate loss.

    If someone offered you a fixed rate savings account index containing accounts with a wide range of different accounts with different rates and maturity dates  allocated according to the total amount invested by all subscribers in each account would you be tempted?
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
    1,000 Posts Third Anniversary Name Dropper
    Typically there are other screening criteria, eg minimum credit rating, minimum and maximum maturities and minimum number of institutional investors.   

    Incidentally, there are high interest saving account funds which are based on a multitude of saving accounts and people do buy them. 
  • NedS
    NedS Posts: 4,868 Forumite
    Sixth Anniversary 1,000 Posts Photogenic Name Dropper
    Linton said:
    NedS said:
    AlanP_2 said:
    Looking at https://www.fidelity.co.uk/factsheet-data/factsheet/IE00B2RHVP93-vanguard-glbl-bond-index-gbp-hdgd-dist/portfolio
    I see that the investment objective is:


    The fund seeks to provide returns consistent with the performance of the Barclays Capital Global Aggregate Float Adjusted Bond Index (the “Index”) by primarily investing in other funds of the Company (the “Underlying Funds”). It will primarily invest directly in the underlying bonds which the various Underlying Funds hold although the Fund will retain the ability to invest up to 10% of its net assets in collective investment schemes.

    The top ten holdings (out of 14309) are:



    		Security nameSectorCountry% of assets
    1Italy (Republic Of) 1.85%-Italy0.49
    2Germany (Federal Republic Of)-Germany0.47
    3United States Treasury Notes 0.12%-United States0.42
    4France (Republic Of) 0.75%-France0.39
    5France (Republic Of)-France0.34
    6United States Treasury Notes 0.12%-United States0.31
    7United States Treasury Notes 0.12%-United States0.30
    8Federal National Mortgage Association 2.5%-United States0.29
    9United States Treasury Notes 0.25%-United States0.28
    10United States Treasury Notes 1.12%-United States0.28

    Based on the objective "global aggregate float adjusted" why is the Italian bond the largest investment and why isn't number 14308 (for example) the largest investment?

    The old adage is don't invest in what you don't understand and I do not understand how those 14309 index constituents are ranked so am uncomfortable with blindly allocating nearly 0.5% of the fund to that Italian bond.

    With a managed bond allocation at least I can comfort myself with the thought that someone has evaluated the options and decided the Italian bond has a better risk / return profile than number 10 in above list or number 14308. Admittedly they might be wrong but it seems more evidence based to my mind.
    This is no different to buying an equity index. You take the view that you do not have any superior knowledge to the rest of the market, so you just buy the whole market. I own a whole bunch of companies in my index tracker that I would never dream of owning individually, but if you buy a passive index tracker, that's what you get.
    Whether passive index trackers are a good idea for bond markets, I have no clue :-)

    Bonds are nothing like equity.  They are much closer to fixed term savings accounts with a guaranteed term and interest rate.  But they have the added advantage that you can sell them at any time possibly at a moderate loss.

    If someone offered you a fixed rate savings account index containing accounts with a wide range of different accounts with different rates and maturity dates  allocated according to the total amount invested by all subscribers in each account would you be tempted?
    I was commenting on the concept of buying index tracker funds rather than differences or similarities in the underlying assets the index tracks.

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