L&G PMC Fixed Interest Fund 3

Pat38493

Can anyone shed any light on how this fund works?

The fund is labelled as "Fixed interest fund" but it went down with everything else in 2022/23.

Another poster was asking about this in the midst of another thread and on reflection I am confused about what type of fund this is?

Also - the poster said that this is in an employer pension scheme and they have never changed the fund investment choices - does this make any sense that an employer would be using this kind of fund as a default (or even lifestyle) fund?

dunstonh

The fund is labelled as "Fixed interest fund" but it went down with everything else in 2022/23.

Fixed interest securities took a hammering in 2022.  How it went down was very different to how equities went down.  

Another poster was asking about this in the midst of another thread and on reflection I am confused about what type of fund this is?

Fixed interest securities covers Gilts, Treasury stocks and corporate bonds.  There are some categories within those.

Also - the poster said that this is in an employer pension scheme and they have never changed the fund investment choices - does this make any sense that an employer would be using this kind of fund as a default (or even lifestyle) fund?

95% of the time, fixed interest securities (and in particular gilts in terms of lifestyle risk reduction on pensions) will act in line with their expected volatility range.  Indeed, that goes for most investment types.    2022 saw gilts suffer two black swan events in a single year.    i.e. it suffered two major negative events that fell within the 5%.

So, any portfolio (which is most people) that had gilts in them, took a hit that was more significant than would be considered normal.   There was an expectation that gilts would begin to fall at some point.  Predictions on that started in 2012.  But the expectation was it would be a more gradual fall with falling unit prices but rising yield.  A process taking a decade or two.  Instead, the effects of the 2008 credit crunch (followed by CV) effectively unwound in the space of 15 months.

To put that in context, if you took a 100 years then just 5 of those would have a very significant negative event. 2022 had two of them in a single year.

Pat38493

dunstonh said:

The fund is labelled as "Fixed interest fund" but it went down with everything else in 2022/23.

Fixed interest securities took a hammering in 2022.  How it went down was very different to how equities went down.  

Another poster was asking about this in the midst of another thread and on reflection I am confused about what type of fund this is?

Fixed interest securities covers Gilts, Treasury stocks and corporate bonds.  There are some categories within those.

Also - the poster said that this is in an employer pension scheme and they have never changed the fund investment choices - does this make any sense that an employer would be using this kind of fund as a default (or even lifestyle) fund?

95% of the time, fixed interest securities (and in particular gilts in terms of lifestyle risk reduction on pensions) will act in line with their expected volatility range.  Indeed, that goes for most investment types.    2022 saw gilts suffer two black swan events in a single year.    i.e. it suffered two major negative events that fell within the 5%.

So, any portfolio (which is most people) that had gilts in them, took a hit that was more significant than would be considered normal.   There was an expectation that gilts would begin to fall at some point.  Predictions on that started in 2012.  But the expectation was it would be a more gradual fall with falling unit prices but rising yield.  A process taking a decade or two.  Instead, the effects of the 2008 credit crunch (followed by CV) effectively unwound in the space of 15 months.

To put that in context, if you took a 100 years then just 5 of those would have a very significant negative event. 2022 had two of them in a single year.

Thanks - what is the difference between gilts and bonds, or does that require an whole book of reading to understand?  Or is gilts just a subset of Bonds?

Also - why are they called "Fixed interest" if they can make a loss?  I guess it's because the fund is trading in these, buying and selling them all the time, or what?

Is there any investment (other than a bank savings account) which makes an guaranteed fixed interest rate over a given time?

artyboy

Pat38493 said:

dunstonh said:

The fund is labelled as "Fixed interest fund" but it went down with everything else in 2022/23.

Fixed interest securities took a hammering in 2022.  How it went down was very different to how equities went down.  

Another poster was asking about this in the midst of another thread and on reflection I am confused about what type of fund this is?

Fixed interest securities covers Gilts, Treasury stocks and corporate bonds.  There are some categories within those.

Also - the poster said that this is in an employer pension scheme and they have never changed the fund investment choices - does this make any sense that an employer would be using this kind of fund as a default (or even lifestyle) fund?

95% of the time, fixed interest securities (and in particular gilts in terms of lifestyle risk reduction on pensions) will act in line with their expected volatility range.  Indeed, that goes for most investment types.    2022 saw gilts suffer two black swan events in a single year.    i.e. it suffered two major negative events that fell within the 5%.

So, any portfolio (which is most people) that had gilts in them, took a hit that was more significant than would be considered normal.   There was an expectation that gilts would begin to fall at some point.  Predictions on that started in 2012.  But the expectation was it would be a more gradual fall with falling unit prices but rising yield.  A process taking a decade or two.  Instead, the effects of the 2008 credit crunch (followed by CV) effectively unwound in the space of 15 months.

To put that in context, if you took a 100 years then just 5 of those would have a very significant negative event. 2022 had two of them in a single year.

Thanks - what is the difference between gilts and bonds, or does that require an whole book of reading to understand?  Or is gilts just a subset of Bonds?

Also - why are they called "Fixed interest" if they can make a loss?  I guess it's because the fund is trading in these, buying and selling them all the time, or what?

Is there any investment (other than a bank savings account) which makes a guaranteed fixed interest rate over a given time?

In simple terms:

- Gilts are a common term used to describe U.K. government debt
- U.K. government debt is a subset of broader global government debt
- global government debt is a subset of the broader 'bond' market, which also includes debt issued by private companies and other non-government public sector organisations

They are called 'fixed interest' because the bonds are debt instruments where companies or governments are borrowing money at a fixed rate of interest that is paid to those that lend to them (ie the 'bond holders'). However whilst the interest is fixed, the actual value of the bonds can go up and down, rather like shares.

So your final question is possibly the wrong one - you are really asking where you can get a fixed interest rate and no risk to your capital as well - and for that, you need a savings account (note that the fixed term accounts are often called 'bonds' but that's a totally different thing!)

Pat38493

artyboy said:

Pat38493 said:

dunstonh said:

The fund is labelled as "Fixed interest fund" but it went down with everything else in 2022/23.

Fixed interest securities took a hammering in 2022.  How it went down was very different to how equities went down.  

Another poster was asking about this in the midst of another thread and on reflection I am confused about what type of fund this is?

Fixed interest securities covers Gilts, Treasury stocks and corporate bonds.  There are some categories within those.

Also - the poster said that this is in an employer pension scheme and they have never changed the fund investment choices - does this make any sense that an employer would be using this kind of fund as a default (or even lifestyle) fund?

95% of the time, fixed interest securities (and in particular gilts in terms of lifestyle risk reduction on pensions) will act in line with their expected volatility range.  Indeed, that goes for most investment types.    2022 saw gilts suffer two black swan events in a single year.    i.e. it suffered two major negative events that fell within the 5%.

So, any portfolio (which is most people) that had gilts in them, took a hit that was more significant than would be considered normal.   There was an expectation that gilts would begin to fall at some point.  Predictions on that started in 2012.  But the expectation was it would be a more gradual fall with falling unit prices but rising yield.  A process taking a decade or two.  Instead, the effects of the 2008 credit crunch (followed by CV) effectively unwound in the space of 15 months.

To put that in context, if you took a 100 years then just 5 of those would have a very significant negative event. 2022 had two of them in a single year.

Thanks - what is the difference between gilts and bonds, or does that require an whole book of reading to understand?  Or is gilts just a subset of Bonds?

Also - why are they called "Fixed interest" if they can make a loss?  I guess it's because the fund is trading in these, buying and selling them all the time, or what?

Is there any investment (other than a bank savings account) which makes a guaranteed fixed interest rate over a given time?

In simple terms:

- Gilts are a common term used to describe U.K. government debt
- U.K. government debt is a subset of broader global government debt
- global government debt is a subset of the broader 'bond' market, which also includes debt issued by private companies and other non-government public sector organisations

They are called 'fixed interest' because the bonds are debt instruments where companies or governments are borrowing money at a fixed rate of interest that is paid to those that lend to them (ie the 'bond holders'). However whilst the interest is fixed, the actual value of the bonds can go up and down, rather like shares.

So your final question is possibly the wrong one - you are really asking where you can get a fixed interest rate and no risk to your capital as well - and for that, you need a savings account (note that the fixed term accounts are often called 'bonds' but that's a totally different thing!)

Thanks - and actually it's not completely surprising then that this fund would be the selected fund for the final year of retirement for this person if they have a lifestyling option activated?  From that I could gather their fund was 100% in this L&G fund.

And from Dunstoh's comments this would in 95 years out of 100 be a pretty safe bet, but tlast year we got 2 out of the 5 in one hundred bad events!

artyboy

Pat38493 said:

artyboy said:

Pat38493 said:

dunstonh said:

The fund is labelled as "Fixed interest fund" but it went down with everything else in 2022/23.

Fixed interest securities took a hammering in 2022.  How it went down was very different to how equities went down.  

Another poster was asking about this in the midst of another thread and on reflection I am confused about what type of fund this is?

Fixed interest securities covers Gilts, Treasury stocks and corporate bonds.  There are some categories within those.

Also - the poster said that this is in an employer pension scheme and they have never changed the fund investment choices - does this make any sense that an employer would be using this kind of fund as a default (or even lifestyle) fund?

95% of the time, fixed interest securities (and in particular gilts in terms of lifestyle risk reduction on pensions) will act in line with their expected volatility range.  Indeed, that goes for most investment types.    2022 saw gilts suffer two black swan events in a single year.    i.e. it suffered two major negative events that fell within the 5%.

So, any portfolio (which is most people) that had gilts in them, took a hit that was more significant than would be considered normal.   There was an expectation that gilts would begin to fall at some point.  Predictions on that started in 2012.  But the expectation was it would be a more gradual fall with falling unit prices but rising yield.  A process taking a decade or two.  Instead, the effects of the 2008 credit crunch (followed by CV) effectively unwound in the space of 15 months.

To put that in context, if you took a 100 years then just 5 of those would have a very significant negative event. 2022 had two of them in a single year.

Thanks - what is the difference between gilts and bonds, or does that require an whole book of reading to understand?  Or is gilts just a subset of Bonds?

Also - why are they called "Fixed interest" if they can make a loss?  I guess it's because the fund is trading in these, buying and selling them all the time, or what?

Is there any investment (other than a bank savings account) which makes a guaranteed fixed interest rate over a given time?

In simple terms:

- Gilts are a common term used to describe U.K. government debt
- U.K. government debt is a subset of broader global government debt
- global government debt is a subset of the broader 'bond' market, which also includes debt issued by private companies and other non-government public sector organisations

They are called 'fixed interest' because the bonds are debt instruments where companies or governments are borrowing money at a fixed rate of interest that is paid to those that lend to them (ie the 'bond holders'). However whilst the interest is fixed, the actual value of the bonds can go up and down, rather like shares.

So your final question is possibly the wrong one - you are really asking where you can get a fixed interest rate and no risk to your capital as well - and for that, you need a savings account (note that the fixed term accounts are often called 'bonds' but that's a totally different thing!)

Thanks - and actually it's not completely surprising then that this fund would be the selected fund for the final year of retirement for this person if they have a lifestyling option activated?  From that I could gather their fund was 100% in this L&G fund.

And from Dunstoh's comments this would in 95 years out of 100 be a pretty safe bet, but tlast year we got 2 out of the 5 in one hundred bad events!

Lifestyling funds are a bit of an old fashioned concept as they were designed to get the fund 'ready' for buying an annuity - something which not a lot of people do nowadays with DC pension pots. 

But what they would do is gradually move the fund allocation towards 25% cash (on the assumption that people took out the tax free cash), and 75% gilts - because the value of gilts tends to track the value of the annuity that you'd buy. In other words, by retirement, the fund no longer had any real risk/volatility relative to its intended purpose.

I got a bit stung on bonds too, but on the flip side, I had many years of unexpectedly high returns before that, so I can't really grumble.