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GeoffTF

The Accumulator is bloodied but not bowed:

https://monevator.com/the-slow-and-steady-passive-portfolio-update-q1-2022/

aroominyork

ChainsawCharlie said:

I do realise that during High interest rates and inflation they may not perform as well.

That's not quite right. If you buy bonds when interest rates are high you will get a higher return (so long as they do not default). The underperformance related to bonds you already hold when interest rates are rising, because new issues will pay higher rates so your bond becomes less valuable.

gm0

Can of course hold actual government bonds  (to term), collect coupons and linker outputs and capital at term.  Locking in known loss by buying above par most likely.  But this is an inflation linked (to a known metric) cashflow at a known upfront cost.  The TIPS ladder idea from the USA applied to UK Gilts.  Bit of a faff.  But no interest rate/capital value of the fund to worry about - not selling only redeeming. No FX risk (other than the value of your £ to buy imports).  Just regulatory risk (CPI metric fiddling).

Alternatively if we are shopping for bond funds in a mixed portfolio then you need to understand "duration" years to run (the sensitivity of the bond fund to changes in interest rates (more for longer duration, less for shorter).  Your average duration for a fund should be fairly easy to find on fund fact sheet, KIID etc if not explicit to the mandate or title.

In your portfolio overall CASH and BONDS together can be (but don't have to be) viewed as blending - duration the so called bond bar bell.  Long bonds + Cash = some version of medium (averaging out).  There is phenomenon called convexity which relates to how yield curves and FI returns work - that cause some to argue that it makes a bar bell more attractive to hold than a fund of medium bonds without the cash.  For a given amount and a risk adjusted return.  This is at odds with most of what I read where commentators tend to be guiding the consumer towards shorter durations to ramp down the interest rate capital impact risk at the expense of the portfolio protection offered.  No free lunch is evident.

You can read about this some more on monevator in the comments around the portfolio design threads and take a view.  I am not a fixed income expert by any means.  It's the hardest part to get to grips with I find. 

A lot of retail bond funds seem to have a mix of gilts, foreign gilts, maybe with some hedged, maybe not, developed corporates, EM bonds, high yield bonds (aka Junk). Diversfied = good - sort of.  But the more of the latter categories then the more they start to resemble "growth assets" - just a different sort  If you want UK linkers as ballast and an additional type of inflation hedge to equities then buy those.  I don't want overseas corporate BBB and below in my portfolio in the spot ear marked for cash and gilts/linkers.  Purpose comes first.  If I have a spot for a global bond indexer with a "medium" duration then that's something else again.

As it goes - most of my bonds at the moment are inside multi-asset funds where I bought the fund for other reasons and it's part of the mix on a take it or leave it basis.

A lot of monevator articles around this and other similar commentary seem to be quite strict about using UK gilts, Developed gilts (hedged to sterling) as lower risk ballast / a cash substitute - this to be sold for income or rebalanced to equities and dampen a valuation cycle.  Corporates and EM and Junk and unhedged being in the FX speculation and growth assets pot.
You don't have to do it that way but moving away from those criteria brings in currency appreciation / FX alongside central bank rates as risk factors to consider.