What is the current YTM of the Vanguard Uk inflation linked bond fund?

Frequentlyhere

The idea of investing in a bond fund that has a positive after-RPI inflation return is one that rather appeals to me.

I'm looking at the Vanguard UK inflation linked fund , which has a stated YTM of -0.9% as of the 31st August. 

However an awful lot has happened since then of course, and the price is down a full 20% since that point. So my question is, is there a way to calculate the exact or at least approximate current Yield to Maturity of this fund?

@hallmark as you can probably gather, I'm interested in these funds too!

Frequentlyhere

As usual, asking a question prompts me to try and answer it myself. Does this fag packet maths work at all?

If on the 31st Aug there was a YTM of -0.9% per year and the average maturity is 19 years, then if you had bought the fund on 31st August you can expect to achieve a total return of -17% after inflation in the long run ( -0.9*19).

If the fund has now dropped 20% since 31st August, all of that negative after-inflation return evaporates and you're left with a very marginal amount of positive after inflation yield, but basically sod all a year. 

That 'feels' kind of right, but I suspect I might have got the right-ish answer with the wrong maths ;-)  Can anyone mark my homework?

Linton

The calculation of YTMs of inflation linked bonds is different to that for fixed rate bonds.  AIUI they assume a long term  inflation rate of 3%, so -0.9% is still positive in £ terms.  Whether that applies to inflation linked bond funds I don't know.  Does the Vanguard figure represent a weighted average of the bonds it holds?  If it means something different I cannot see what it could be.

In any case bond funds behave very differently to individual bonds.  In particular when you sell you wont be selling the underlying investments at maturity but probably at some very different time.   The 4 largest holdings in the Vanguard fund have maturity dates beyond the start of 2050.

As has been seen over the past year inflation linked bond prices can be very volatile.  Over the long term small changes in interest rates and the market's outlook for inflation can make a significant difference to the price.   So I suggest you dont rely on an IL bond fund to give you inflation protection.  

masonic

As of 31st August, you would get RPI-0.9% per year over the next 8 years, then CPI-0.9% for the next 38 years if the fund stopped buying new issues and let its portfolio run down. Because the fund will be buying new issues as they are sold, your actual return would be quite different (and impossible to predict). Since interest rates are likely to continue rising in the short term, you can expect your short term returns to be below RPI-0.9%, probably below the ~4% you could get by buying individual short dated gilts.

I don't see the attraction of a fund like this unless you think inflation is going to be higher than nominal interest rates for decades.