Using LifeStrategy 20 as a Bond Fund

Thrugelmir

tebbins said:

Prism said:

JohnWinder said:

Thanks. Always feels instructive, but I get no more confident in what to do. I was complaining about equities going nowhere for 15 years in 1930's. You've shown global equities going nowhere for 12 years (did I read that right?), presumably with dividends reinvested, and presumably that graph is nominal values. If so, and there was inflation where you lived holding global equities, it was even longer than 12 years to recover.

Yup, because of the start of the century being such a poor time for equities it took around 18 years for the returns on equities to catch up with those on UK Gilts. I imagine that global bonds are still ahead of equities after 21 years.

I don't know about global bonds, but if you compare the FTSE 100 or All Share and the FTSE Actuaries UK Conventional Gilts All Stocks indices, this is still true.

If you don't account for reinvested dividend income then you are looking at an incomplete picture. 

masonic

Thrugelmir said:

tebbins said:

Prism said:

JohnWinder said:

Thanks. Always feels instructive, but I get no more confident in what to do. I was complaining about equities going nowhere for 15 years in 1930's. You've shown global equities going nowhere for 12 years (did I read that right?), presumably with dividends reinvested, and presumably that graph is nominal values. If so, and there was inflation where you lived holding global equities, it was even longer than 12 years to recover.

Yup, because of the start of the century being such a poor time for equities it took around 18 years for the returns on equities to catch up with those on UK Gilts. I imagine that global bonds are still ahead of equities after 21 years.

I don't know about global bonds, but if you compare the FTSE 100 or All Share and the FTSE Actuaries UK Conventional Gilts All Stocks indices, this is still true.

If you don't account for reinvested dividend income then you are looking at an incomplete picture. 

In this case it holds true even with income reinvested, the FTSE250 has done rather better, but FTSE100 and All Share are still trailing behind (of course that is unsustainable going forward):

tebbins

Secular fall in interest rates, dot-com bubble plus the UK's financial exposure in GFC1 and the Brexit/Covid double whammy. Even if the FTSE 100 flatlines for the next 20 years the dividends alone are bound to generate a higher return than gilts.

Thrugelmir

tebbins said:

Secular fall in interest rates, dot-com bubble plus the UK's financial exposure in GFC1 and the Brexit/Covid double whammy. Even if the FTSE 100 flatlines for the next 20 years the dividends alone are bound to generate a higher return than gilts.

No particular signs of Brexit woes and the UK is faring better than most recovering from/coping with the pandemic. Not all doom and gloom. Though the road ahead is going to be of full of potholes. 

coastline

aroominyork said:

This thread has given me a better understanding of the purpose and nature of fixed interest investments. I have two conclusions: 1) Overweighting the UK feels right, especially if you want to minimise the number of funds and want some linkers in the mix. So I favour VLS20 over Vanguard Global Bond Index. The fixed interest in VLS seems have a bit more in gilts than in bonds and that suits me. However if someone knows a cheaper way (than VLS's 0.22% charge) to get a similar investment I would be glad to know it. 2) A strategic bond fund heavy in BBBs is perhaps a case of wanting to have your cake and eat it, and only in a downturn will it become clear that is not possible. I will therefore reduce my strategic fund holdings and increase VLS20 or similar.

Might not be cheaper but a contender ? 

iShares Global Govt Bond UCITS ETF Hedged Inc GBP Fund factsheet | Trustnet

Ishares III Plc Share Price (IGLH) Global Gov BD UCITS ETF GBP DIST HD | IGLH (hl.co.uk)

Picked it up from this article which is a decent read.

The best Vanguard bond funds for UK investors - Occam Investing

masonic

coastline said:

aroominyork said:

This thread has given me a better understanding of the purpose and nature of fixed interest investments. I have two conclusions: 1) Overweighting the UK feels right, especially if you want to minimise the number of funds and want some linkers in the mix. So I favour VLS20 over Vanguard Global Bond Index. The fixed interest in VLS seems have a bit more in gilts than in bonds and that suits me. However if someone knows a cheaper way (than VLS's 0.22% charge) to get a similar investment I would be glad to know it. 2) A strategic bond fund heavy in BBBs is perhaps a case of wanting to have your cake and eat it, and only in a downturn will it become clear that is not possible. I will therefore reduce my strategic fund holdings and increase VLS20 or similar.

Might not be cheaper but a contender ? 

iShares Global Govt Bond UCITS ETF Hedged Inc GBP Fund factsheet | Trustnet

Ishares III Plc Share Price (IGLH) Global Gov BD UCITS ETF GBP DIST HD | IGLH (hl.co.uk)

Picked it up from this article which is a decent read.

The best Vanguard bond funds for UK investors - Occam Investing

AGBP (iShares, 0.10%) and VAGS (Vanguard, 0.10%) are cheaper options, they include corporate as well as Government bonds, but the credit quality is high.

For these options or the pure Government ones, to get some UK bias it would be necessary to combine with some UK Gilts, for example GLTA (Invesco, 0.06%) or VGOV/IGLT (Vanguard/iShares, 0.07%)

aroominyork

Another bond question, prompted by a post a while back that you should want your bond returns only to reflect the yields. Say there are two strategic bond funds which have consistently returned 3.5% pa over recent years. One has a distribution yield of 3.5%. The other has a distribution yield of 2.5% and has also grown 1% annually. Which would you invest in, and why?

masonic

aroominyork said:

Another bond question, prompted by a post a while back that you should want your bond returns only to reflect the yields. Say there are two strategic bond funds which have consistently returned 3.5% pa over recent years. One has a distribution yield of 3.5%. The other has a distribution yield of 2.5% and has also grown 1% annually. Which would you invest in, and why?

Strategic bond funds are in the business of trading bonds actively for profit. Therefore any growth cannot be attributed to income being pulled forward, the assets that were responsible for the growth may no longer be in the portfolio. The two funds may differ in how the risks are distributed between risks from the underlying assets and risks from the fund manager. The factors that would matter to make a decision would be the usual ones - the composition of the fund plus your faith in the fund manager to manage the fund in line with your objectives for holding it.

aroominyork

So is a valid objective to seek capital growth from bonds, rather than just distribution income? Is lower risk (lower yield) from a manager who can consistently deliver some growth, preferable to higher yield with no growth, since you are better positioned in a downturn?

tebbins

aroominyork said:

So is a valid objective to seek capital growth from bonds, rather than just distribution income? Is lower risk (lower yield) from a manager who can consistently deliver some growth, preferable to higher yield with no growth, since you are better positioned in a downturn?

I doubt consistent capital growth from bonds, even from an active manager is possible. Bonds necessarily regress to par value at maturity unless specified otherwise. Even if a bond's notional value does include an element of capital growth, the market factors that in, and i think that would even be factored into the yield to maturity.
Bonds do not grow in value like equity or property, they simply wobble in price between the dates of issue and maturity as with all assets, and so the yield correspondingly changes. Seeking capital growth over shorter periods, ie betting that interest rates will fall making the bond more valuable, is a valid shorter-term strategy.