Is now a good time to buy more Bonds?

Linton

grumpsthegit said:

My question is more of a generic one (I thought anyway :-)) but for context 17.5 % of my portfolio is Bonds (64% Sterling, 26% Dollar plus some Euro). Mainly in Royal London Sterling Extra Yield Bond Class Y and Artemis High Income Class MI.

Perhaps you should reconsider your choice of bond funds as to whether they actually meet your needs. The usual purpose of bonds in a split equity/bond portfolio is for bonds to act as a diversifier so that when equities crash, as they normally do every 5 years or so, the bonds will rise in value so dampening down your portfolio volatility.  Bonds for this purpose are generally the very safe ones issued by giovernments.

However you have chosen funds that largely invest in Corporate Bonds issued by companies rather than governments.  These will pay better returns generally than government bonds but are higher risk. The downside is that they are quite strongly correlated with equity,  When equity crashes you would expct corporate bond funds to suffer as well. 

As an example see the performance graphs during Covid...


As I hope you can see the Royal London fund falls about the same amount as equity during the Covid crash whereas gilts only have a very short and much smaller blip.  Are you happy with that?

grumpsthegit

Linton said:

As I hope you can see the Royal London fund falls about the same amount as equity during the Covid crash whereas gilts only have a very short and much smaller blip.  Are you happy with that?

Thanks for that analysis - I guess the answer is not really, as diversification/low risk was the goal. I will hold on to what I have for now but will consider more carefully the next investments. 

Eye2021

The short answer to your question is yes.
Bonds have fallen in he last 18 months and shouldn't fall further.
As interest rates and yeilds stabilise and rise, bonds will naturally increase in value again.
If you wait for the 'tipping point', you will be too late.

Prism

Linton said:

Albermarle said:

Linton said:

michaels said:

artyboy said:

I asked a similar question a while ago, because if there was any objective data to suggest that bonds had been oversold then it might have been worth hanging on to them (given they were initially bought at the high point) in the hope of a bit of a bounce.

Unfortunately these discussions tend to gravitate back to 'bonds do what bonds do' and 'if you want want bonds do, then hold bonds' type comments rather than any meaningful analysis of whether there's any short term upside potential following last years bloodbath. 

It may be there's no easy answer to that, but I think it's a fair question to ask regardless.

Not sure I agree with the other replies - they make sense if you buy bonds and hold to maturity but bond funds are effectively just another asset class to equities with different characteristics.  Historically they have been a useful hedge against equity volatility because:
(a) whilst on average they have yielded less than equities they have also been less volatile
(b) returns have tended to be inversely correlated with equity returns

The reason there is little discussion of changing equity/bond weightings is that this would be an example of trying to time the market - basically betting that your guess on where prices are going next is better than the market consensus ()which is what is priced in).  Unless you have inside information then this is effectively gambling and historically those who gamble in this way on average end up worse off than those who maintain a fixed strategy.

Yes but the danger is that people may believe that bond funds have the same relationship to individual bonds that equity funds have with their underlying shares.  ie an easy way to get diversification by holding a variety of shares. 

Because of the fundamental importance of the fixed maturity date individual bonds behave very differently to bond funds and so could reasonably be considered a different type of asset.  Do not expect one to give you all the benefits of the other and make your choice of which to buy on your reasons for holding bonds at all..

Can you not though buy bond funds that concentrate on short, medium and long term maturity dates, rather than a complete mix of all of them ?

Yes you can buy restricted duration gilt funds though the choice is pretty limited and is mainly short dated.  I cant find any purely medium or long dated gilt ETFs though I cannot think of an objective that wuld require them rather than a general gilt fund.  Clearly a purely long dated gilt fund could be very volatile since minor changes in interest rates would be cumulated over decades.

There is only one medium durtion gilt fund that I know of - its and ETF (GBPG). Its fixed to 5 year duration, however when you look under the covers you find that it is simply 50% 1-3 year gilts and 50% 7-10 year gilts. I assume they must sell them when they get to 6 years, which seems a bit wasteful on trading fees.

JohnWinder

They must sell what, when what gets to six years? I don’t see any selling needed. 

dealyboy

Mail on Sunday today (12th Nov) ... Rosie Murray-West Wealth & Personal Finance ... "Three tricky years ... but now may be the time to invest in a bond bonanza".

You may be able to read this interesting article via msn and thisismoney ... https://www.msn.com/en-gb/money/other/now-may-be-the-time-to-invest-in-a-bond-bonanza/ar-AA1jLYuP?ocid=finance-verthp-feeds

Linton

dealyboy said:

Mail on Sunday today (12th Nov) ... Rosie Murray-West Wealth & Personal Finance ... "Three tricky years ... but now may be the time to invest in a bond bonanza".

You may be able to read this interesting article via msn and thisismoney ... https://www.msn.com/en-gb/money/other/now-may-be-the-time-to-invest-in-a-bond-bonanza/ar-AA1jLYuP?ocid=finance-verthp-feeds

mmm sounds like it's time to get out of bonds!

Seriously though surely one doesn't buy bonds for a bonanza.    Rather because they are tthe appropriate asset for yoour needs.  If bonds are what you need there are not a lot of mainstream alternatives other than cash.  If they aren't, why buy them?

Altior

That argument could almost be made about any equity asset or fund.

My view is that most whales and institutions move the markets on a daily basis, or they think they can. They aim for perfect timing. Retail players can take a longer term view. If I buy a gilt fund now, I don't care too much if it is a couple of percent lower or higher next week or next month. I'm planning to hold it for a year or more.

To me it's quite obvious that there is long term value in these funds at their current trading levels, but the 'professionals' back themselves to get in just before the spike, ie when the FED drop rates, or indicate to the market that they will.

A correlation that I would make is that almost everyone expected equities to recover from the covid fear and lockdown. But the wider market waited, and then came the recovery. I was happy to buy at the bottom and wait it out. In fact, the 'bottom' was all too short, it was actually a pretty narrow window, alas.

Another one off example, an asset I'm favouring right now is INPP (infra IT). In my view this asset will spike up when central bank policy reverts, as its trading price is heavily correlated by its yield vs the risk free rate. But I don't know exactly when that will be. I'm still purchasing an asset that is yielding a bit more than the risk free rate over the last while (I can afford to wait and take some immediate risk) and I feel will recover somewhat in the short to medium view. 

Altior

Two posts in a row, sorry! Just to clarify that it's a different scenario if people are looking at a specific, stable allocation, or are out of the accumulation stage (re pension pots). I'm still accumulating (hopefully), and do have long term fund of funds which I don't meddle with. I do permit myself to be active in a proportion of my investments (inside and outside of pension wrappers).

Albermarle

dealyboy said:

Mail on Sunday today (12th Nov) ... Rosie Murray-West Wealth & Personal Finance ... "Three tricky years ... but now may be the time to invest in a bond bonanza".

You may be able to read this interesting article via msn and thisismoney ... https://www.msn.com/en-gb/money/other/now-may-be-the-time-to-invest-in-a-bond-bonanza/ar-AA1jLYuP?ocid=finance-verthp-feeds

In the last couple of days I received an e mail from Fidelity, and one from HL with info on the same subject.
The HL one was rather fluffy and would only say that it probably would not be a very bad time to buy gilts. However  the one from Fidelity contained a strong buy recommendation for gilts from their main Investment Director Tom Stevenson, who normally seems to talk sense. Some quotes.
' Not trying to time the market is an article of faith but there are moments when the odds seem stacked in your favour.' ' It feels like for govt bonds we have reached that point' ' The dual case for government bonds - income and capital gain- is the most compelling right now ' ' If ever there was a moment to time the market it is now' 

Strong stuff from a normally cautious guy.