Why are gilt ETF yield so low

hallmark

masonic said:

The yield of a fund is normally expressed as income from the previous 12 months divided by the current price and excludes capital uplift in gilts approaching maturity. The figure that is most relevant for a long term investor is not the yield, but the Yield To Maturity (YTM), which is forward looking and based on total return. For example, VGOV has a YTM of 3.5%, but a trailing yield of just 1.91%. The YTM is what you would get if the fund stopped investing in new gilt issues and let its current portfolio run to maturity. Neither figure is an indication of the return you will get over a finite holding period. If you want a known return, then you'd need to invest directly in individual gilts.

Gilt yields are not dependent on the BoE base rate, their initial yield is determined by an auction and the yield if purchased on the secondary market is determined by market sentiment. See https://www.bankofengland.co.uk/statistics/yield-curves for the current state of play.

That;s useful to understand.  So by implication, does that mean the constituent bond funds of something like LS40 or LS60 might currently be yielding a fair bit more than the quoted Yield (and that in turn LS40 and LS60 might be yielding more than their quoted yield suggests)?

Linton

hallmark said:

masonic said:

The yield of a fund is normally expressed as income from the previous 12 months divided by the current price and excludes capital uplift in gilts approaching maturity. The figure that is most relevant for a long term investor is not the yield, but the Yield To Maturity (YTM), which is forward looking and based on total return. For example, VGOV has a YTM of 3.5%, but a trailing yield of just 1.91%. The YTM is what you would get if the fund stopped investing in new gilt issues and let its current portfolio run to maturity. Neither figure is an indication of the return you will get over a finite holding period. If you want a known return, then you'd need to invest directly in individual gilts.

Gilt yields are not dependent on the BoE base rate, their initial yield is determined by an auction and the yield if purchased on the secondary market is determined by market sentiment. See https://www.bankofengland.co.uk/statistics/yield-curves for the current state of play.

That;s useful to understand.  So by implication, does that mean the constituent bond funds of something like LS40 or LS60 might currently be yielding a fair bit more than the quoted Yield (and that in turn LS40 and LS60 might be yielding more than their quoted yield suggests)?

Yes, reliance on %Yield for any investment can be very misleading.  Yield is a calculated figure based on current price and the past years dividends/interest.  Actual dividends or interest are determined as a cash amount.  Say a company with shares valued at £2 issues an annual  dividend it will be expressed as say 10p/share so working out as a 5% yield.  If the company's value crashes to £1/share before the next dividend is due the Yield will be given in the published data as 10% and so the share may look very attractive.  Similarly with funds.

GeoffTF

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

A curiosity with ii is that you can buy part units but to sell online you have to round down, eg you can buy 99.8 shares but have to sell 99 shares. Maybe phone dealing lets you sell the full holding.

I have looked at my records. I bought gilts online with Squaregain (which no longer exists) and received a fractional amount. I have more recently bought gilts over the telephone with iWeb, and also have a fractional amount. If you specify a value in pounds rather than a number a shares, you are likely to get a fractional amount. The same applies to OEICs.

Yes, but you can sell fractional amount of OEICs.

Sorry, I see your point. I bought and sold over the phone with AJ Bell. I do appear to have lost a fractional amount, but the money involved was negligible. The best plan is to hold to maturity to avoid half the spread.

Looking back through my transaction log, I see that most recent purchases and sales have been for whole numbers, irrespective of the broker. Fractional purchases and sales appear to have been more common twenty years ago.

aroominyork

GeoffTF said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

A curiosity with ii is that you can buy part units but to sell online you have to round down, eg you can buy 99.8 shares but have to sell 99 shares. Maybe phone dealing lets you sell the full holding.

I have looked at my records. I bought gilts online with Squaregain (which no longer exists) and received a fractional amount. I have more recently bought gilts over the telephone with iWeb, and also have a fractional amount. If you specify a value in pounds rather than a number a shares, you are likely to get a fractional amount. The same applies to OEICs.

Yes, but you can sell fractional amount of OEICs.

Sorry, I see your point. I bought and sold over the phone with AJ Bell. I do appear to have lost a fractional amount, but the money involved was negligible. The best plan is to hold to maturity to avoid half the spread.

Looking back through my transaction log, I see that most recent purchases and sales have been for whole numbers, irrespective of the broker. Fractional purchases and sales appear to have been more common twenty years ago.

I was sold fractions a few months ago.