Question about bonds

Thrugelmir

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

 (I'm not keen on the home bias).

To dispel some of the mantra's you've read on social media. Over 50% of UK company revenues are generated from overseas. For the FTSE it's around 70%.  Every market has it's strengths and weaknessess. While the FTSE is predominantly financials, miners and energy. S&P 500 is weighted 40% to technology and healthcare. Holding both provides diversification. UK corporate governance and regulation is at the top of the league tables. Hence why many overseas companies have their main listing on the London Exchanges. Companies such as Spirax Sarco and IMI are world leaders in their field. Looking forward Shell and BP are likely to be at the forefront of the transition to green energy. Their internal expertise in managing large scale projects is world class. Not many companies handle every aspect of their business from extracting a raw material and delivering it to the consumer as a refined product. 

GeoffTF

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Prism

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

I would say they are not comparable. Duration currently 7.6 vs 13.8 makes for a very different risk profile.

Albermarle

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

aroominyork

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

GeoffTF

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. As I have said, the credit quality is AA- in both cases. VAGP is much less volatile than VGOV, with a much wider spread of credit risk. Vanguard uses the OEIC versions of these funds within LifeStrategy, which is an issue that was raised earlier in this thread. Adding a small amount of VGOV is not likely to reduce portfolio volatility much if at all.

VAGP has the higher OCF and transaction costs. It also has a wider market spread. (Hedging costs money.) VGOV has the longer duration. Some prefer VAGP. Others prefer VGOV. You can use either for your bond allocation.

aroominyork

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. 

Nope. An aggregate fund is one which includes both corporate and government bonds. So comparing VGOV (gilt/government only) and VGAP (aggregate: gilt/government + corporate) is a bit apples and pears.

GeoffTF

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. 

Nope. An aggregate fund is one which includes both corporate and government bonds. So comparing VGOV (gilt/government only) and VGAP (aggregate: gilt/government + corporate) is a bit apples and pears.

Yes, I got the terminology wrong there. VGOV tracks Bloomberg Sterling Gilt Float Adjusted Index. Both VGOV and VAGP have an average quality of AA-. VGOV has only AA-. VAGP holds bonds with a higher credit rating (e.g. US Treasury bonds) and lower credit rating (but still of investment quality). VAGP arguably is lower risk overall, because it is not reliant on one creditor. Vanguard favours the OEIC version of VAGP. The Accumulator on the Monevator website favours the OEIC version of VGOV. You can say they are apples and pairs if you like, but they are both alternative choices for the same job. Vanguard and the Accumulator both add small holdings of other bond funds, but that is not necessary.

aroominyork

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. 

Nope. An aggregate fund is one which includes both corporate and government bonds. So comparing VGOV (gilt/government only) and VGAP (aggregate: gilt/government + corporate) is a bit apples and pears.

VGOV tracks Bloomberg Sterling Gilt Float Adjusted Index. Both VGOV and VAGP have an average quality of AA-. VGOV has only AA-. VAGP holds bonds with a higher credit rating (e.g. US Treasury bonds) and lower credit rating (but still of investment quality).

That’s because VGOV only holds UK gilts and the UK govt is rated AA. VAGP includes AAA rated US Treasuries and BBB corporate bonds.

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thrugelmir said:

GeoffTF said:

aroominyork said:

ColdIron said:

VLS 80 has about

14% Vanguard Global Bond Index Hedged
2% Vanguard U.K Government Bond Index
2% Vanguard U.K. Inflation-Linked Gilt Index*

So a fairly good fit, probably closer than your equity fit

*So to get the 'all bond' equivalent within VLS you must multiple by five to get c.10% UK index-linked.

Vanguard's hedged global bond index is not overweight to the UK, while the bonds in VLS are overweight (in a similar way to the equities in VLS). You have chosen not to overweight your equities to the UK so you have to ask yourself the same question about bonds - the answer might not be the same. Personally, I like how a global bond index is less volatile than a UK one, which is why I hold that Vanguard global bond fund.

In a recent interview, Vanguard UK's head of portfolio construction said that a global bond fund (e.g. VAGP) was "a good start point and a good end point". He said (or at least strongly implied) that the addition of some UK gilts was for marketing reasons. The credit quality of VAGP is the same at AA- as for the VGOV gilt tracker.

Dampens down overall volatility by holding domestic currencey I suggest. As provides a known and quantifiable return. 

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

Yes, VAGP is much less volatile than VGOV. Look at their charts. That is only partly due to the shorter duration. Spreading your risk more widely reduces volatility (and credit risk).

Though VGOV and VGAP are not comparable. VGOV is all gilts; VGAP is aggregate so includes corporate bonds.

I was answering:

But isn't a hedged global fund generally less volatile than a domestic fund with similar govt/corporate composition?

VAGP is a hedged global bond fund, and VGOV is domestic gilt fund. They are both aggregate bond funds, i.e. they both track all the bonds meeting their credit quality requirement. 

Nope. An aggregate fund is one which includes both corporate and government bonds. So comparing VGOV (gilt/government only) and VGAP (aggregate: gilt/government + corporate) is a bit apples and pears.

 VAGP arguably is lower risk overall, because it is not reliant on one creditor.

That suggests the UK government might default. If that happens, we will have bigger problems than a bond fund losing value!

Thrugelmir

Albermarle said:

eskbanker said:

me107 said:

eskbanker said:

me107 said:

I am constructing my own version of LS via Vanguard.

me107 said:
I don't want to hold VLS itself

Out of curiosity, what is it that you're actually trying to achieve?  There are a variety of global multi-asset funds offered by Vanguard's competitors that may be a closer fit to your target geographic allocation if that's the issue, or have you perhaps reversed the usual recommended order and decided on the platform before the investments?

I should have probably phrased the opening passage a little clearer. I am not literally trying to create my own LS fund. I am trying to create a 60/40 portfolio on the Vanguard platform, in as simple a way as possible (i.e. just holding one equity and one bond fund), without having to purchase VLS60 (I'm not keen on the home bias).

I suspected that might be the case - have you already committed to that platform then?  If your aim is to have a 60/40 split without VLS's UK bias then there are simple one-stop-shop solutions available on other platforms, some of which are likely to deliver a more cost-effective answer overall, although many choose a risk-targeted management style rather than fixed percentages, if that's significant to you.

https://monevator.com/passive-fund-of-funds-the-rivals/ lists the options that were around in mid 2019, which have subsequently been expanded with newer ones such as Blackrock's MyMap range.

Fidelity Investment Funds IV - Fidelity Multi Asset Allocator Growth Fund W Accumulation Charges and Key Documents | GB00B9C3GS90 | Fidelity

This is basically VLS 60 without the UK bias. Ongoing charge 0.2% . Not available on the Vanguard platform of course.

Not actually a bias. As indexes themselves are risk weight adjusted. Major UK stocks are international companies. Just happens their brass plate is located in London. This fact never seems to register how ever much it gets written.