Alternatives to VGOV

dunstonh

You only hold gilts to reduce the volatility on your portfolio to a level you can tolerate (or income yield).   You don't hold gilts for long term growth.   Gilts have had a 14 year period of growth because both things they need for growth occurred.  Low and falling interest rates and low inflation.  When inflation and/or interest rates rise gilt unit prices will fall.  Although the yield will increase.   Looking ahead, you are getting both inflation and interest rate rises.    If they return to pre-credit crunch levels, you would expect the unit price gains of the last 14 years to be wiped out.  Although the relative yield will increase.

aroominyork

Prism said:

aroominyork said:

UK gilts seem much more volatile than a global diversified fund, although of course you miss owning a chunk of linkers reflecting the UK economy. VGOV is green in the graph below. IGLH (yellow) is a developed world government bond fund. Blue is VAGP, mentioned by GeoffTF in the previous post, and red is its open-ended version; these two are aggregate bond funds so they include investment-grade corporate bonds as well as govt bonds.

I don't believe inidividual gilts are more volatile than other developed economy government bonds - why would they be? The difference in that graph is surely all down to the different duration of the funds.

I don't disagree, but I would also say that increased duration leads to increased volatility.

GeoffTF said:

aroominyork said:

UK gilts seem much more volatile than a global diversified fund, although of course you miss owning a chunk of linkers reflecting the UK economy. VGOV is green in the graph below. IGLH (yellow) is a developed world government bond fund. Blue is VAGP, mentioned by GeoffTF in the previous post, and red is its open-ended version; these two are aggregate bond funds so they include investment-grade corporate bonds as well as govt bonds.

VGOV does not appear to contain any linkers.

Thanks for the correction. I assumed it held linkers but had not checked the holdings.

valiant24

GeoffTF said:

VGOV does not appear to contain any linkers. I hold Treasury IL 0.125% 2029. That is not listed under Holding Details. Indeed no 0.125% gilts are listed. The Credit Quality is AA- for both VGOV and VAGP.

Linkers?   Index-linked gilts maybe?   20% of my portfolio is in VGOV and 10 in a pair of index-linked funds hedged to sterling, which have also dropped in value recently but only ~1.5% compared to the 7% on VGOV.

GeoffTF

valiant24 said:

GeoffTF said:

VGOV does not appear to contain any linkers. I hold Treasury IL 0.125% 2029. That is not listed under Holding Details. Indeed no 0.125% gilts are listed. The Credit Quality is AA- for both VGOV and VAGP.

Linkers?   Index-linked gilts maybe?   20% of my portfolio is in VGOV and 10 in a pair of index-linked funds hedged to sterling, which have also dropped in value recently but only ~1.5% compared to the 7% on VGOV.

Yes, "linkers" are index linked gilts.

Thrugelmir

valiant24 said:

GeoffTF said:

valiant24 said:

I've never previously invested in Gilts, but following advice here and elsewhere, about 9 months ago I rationalised my equity ETFs and Funds - I had about 70 of them! - down to basically VWRP and VGOV.

VGOV is killing me!   It's down 7% since the start of the year.  I can't foresee any circumstances in which it will ever stop dropping in the near of medium term, so I think I am going to bail.   This will be the second time in 9 months I have bailed from Gilts and it's cost me over £100k.

What's the alternative?  Just keep the money in cash in case of an equity drop, or maybe drip the cash slowly back into equities?

Keeping £100ks in cash in my SIPP obviously has counter-party risk, albeit that it's unlikely AJ Bell will go tits.  I seem to remember some suggested Money Market investments, perhaps with Vanguard, that were a slightly better investment than straight cash, even after the management charges - can anyone remind me please?

Thanks as ever
V

You should not have bought VGOV if you cannot stomach the risk.

VGOV seens to match my investment horizon per Lars Kroijer: 

The book was originally written many years ago. A very different era formed the basis of his thinking to the one that exists today.

valiant24

Thrugelmir said:

The book was originally written many years ago. A very different era formed the basis of his thinking to the one that exists today.

Have you any suggestions please to where I might read about more up-to-date thinking?   Kroijer's vid on Gilts, which someone else directed to me, is also 5 years old.

coyrls

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

valiant24

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

So, what are other people doing in this respect as an alternative to VGOV?

Prism

valiant24 said:

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

So, what are other people doing in this respect as an alternative to VGOV?

Buy a shorter duration gilt fund. As far as I know there is no intermediate duration gilt fund so you might need to construct your own from a combination of short duration and VGOV if you want something a bit less risky. GIL5 or GTL5 maybe

For comparision, a standard US government bond index fund has a duration of less than 7. I have no idea why gilts have ended up with such a long duration on average.

GeoffTF

Prism said:

valiant24 said:

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

So, what are other people doing in this respect as an alternative to VGOV?

Buy a shorter duration gilt fund. As far as I know there is no intermediate duration gilt fund so you might need to construct your own from a combination of short duration and VGOV if you want something a bit less risky. GIL5 or GTL5 maybe

For comparision, a standard US government bond index fund has a duration of less than 7. I have no idea why gilts have ended up with such a long duration on average.

VGOV is classed as an intermediate dated gilt fund. There are plenty of short dated gilt funds, but Vanguard does not have one packaged as an ETF. The UK government has chosen to borrow money over a longer period than most other governments including the US government.