Funds for a stockmarket downturn/crash

Stargunner

I have been looking at various funds to see what ones performed well during the covid crash from Feb to Apr 2020. It appears that the majority of bond funds also went down during this period, although not as much as equities and it seems that only gilt funds actually went up.
Some examples are :- 

iShares UK Gilts All Stocks Index Fund (UK) H Acc

HSBC UK Gilt Index Fund Accumulation C

I just wondered if this is normally the case and does it mean it is better to hold gilts during a downturn or crash as defensive cover. 

JohnWinder

You can test out your theory here, using asset classes; but funds should respond the same if they're trackers.

https://www.portfoliovisualizer.com/backtest-asset-class-allocation

Thrugelmir

Last year turned out to be a temporary blip. I wouldn't read to much into events back then now.

Equities is a broad generalisation. Companies have many activities. Not all will be impacted in the same way. The issue for fixed interest stocks is that one day interest rates will rise. When who knows. But needs to be factored into ones longer term thinking. 

valiant24

Yes of course.   When the value of equities is rising (say) 10% a year, your 0.5% return on gilts looks pretty meagre.  But when equities are falling you're be grateful for an asset that is not losing value, but actually gaining a little.

That said, of course you only know that it was a downturn or a crash after the event.   As the old saying goes, "They don't ring a bell at the top of the market".

tebbins

0.5% is the yield on gilts, the price of gilts can wobble around regardless and you could argue after nearly 3 decades of gilt outperformance we're actually overdue a gilts crash.
Last year's crash was unusual to say the least. Equity markets were not excessively overvalued, gilts certainly weren't undervalued and it was completely unexpected, very brief and the recovery happened within a year. I don't believe it's sensible to select a fund, based on the belief we are due a crash, because of how it performed relative to equities in one specific crash, over a timeframe of less than a year.
Through a crisis period, not necessarily a whole market fall or correction (ie the early 2000s) gilts tend to - briefly - rally. However there have been short and even long periods when gilts have done crap, e.g. the early-mid 70s crash, the 50s through to the 60s, the 1910s (including a 24% loss in 1916).

bostonerimus

Generally you should not be thinking in the short term and trying to market time unless you are about to retire when you might want to increase your cash and short term bonds depending on your income sources. You need a long term portfolio that will meet your goals and carry you through the ups and downs. You might rebalance if it makes you feel better.

Prism

I went into last years crash with around 10% in global government bonds rather than gilts, some fixed savings accounts and the rest in more defensive equity funds like Fundsmith and Lindsell Train. I barely saw a drop and it only lasted for 8 weeks or so.

It is possible to construct a portfolio that feels more defensive and still produces good returns. Might not work every time though.

Shocking_Blue

Prism said:

I went into last years crash with around 10% in global government bonds rather than gilts, some fixed savings accounts and the rest in more defensive equity funds like Fundsmith and Lindsell Train. I barely saw a drop and it only lasted for 8 weeks or so.

It is possible to construct a portfolio that feels more defensive and still produces good returns. Might not work every time though.

Is the LT fund this one?

https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000MC3M

Do you see any potential issue with the relatively high Japan exposure?

Thanks

Shocking_Blue

Shocking_Blue said:

Prism said:

I went into last years crash with around 10% in global government bonds rather than gilts, some fixed savings accounts and the rest in more defensive equity funds like Fundsmith and Lindsell Train. I barely saw a drop and it only lasted for 8 weeks or so.

It is possible to construct a portfolio that feels more defensive and still produces good returns. Might not work every time though.

Is the LT fund this one?

https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000MC3M

Do you see any potential issue with the relatively high Japan exposure?

Thanks

With a strong exposure to consumer defensive, this looks interesting. Would there be an Acc version of this, do you know? Or if not, are you aware of a similar fund by a different provider as an Acc?
Thanks

dunstonh

I have been looking at various funds to see what ones performed well during the covid crash from Feb to Apr 2020. It appears that the majority of bond funds also went down during this period, although not as much as equities and it seems that only gilt funds actually went up.

Bond funds went down over liquidity/default concerns.   Gilt funds went up as interest rates fell

I just wondered if this is normally the case and does it mean it is better to hold gilts during a downturn or crash as defensive cover. 

Every crash and recession or negative event is different.  

Gilts are a more defensive asset but don't expect the different asset classes to behave the same way in each negative period.

NedS

Shocking_Blue said:

Prism said:

I went into last years crash with around 10% in global government bonds rather than gilts, some fixed savings accounts and the rest in more defensive equity funds like Fundsmith and Lindsell Train. I barely saw a drop and it only lasted for 8 weeks or so.

It is possible to construct a portfolio that feels more defensive and still produces good returns. Might not work every time though.

Is the LT fund this one?

https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000MC3M

Do you see any potential issue with the relatively high Japan exposure?

Thanks

I wouldn't view it so much as a high exposure to Japan, but rather the fund is very concentrated (high conviction) with only ~25 holdings, so large holdings in a few Japanese companies will give that "high exposure" percentage.