Gilts, US Treasuries, or both?

aroominyork

1404 said:

masonic said:

1404 said:

masonic said:

1404 said:

I would like to have some bonds in case of a crash.

Perhaps it would be better to think about what outcome you want from an investment "in case of a crash", and then it may be possible to assess whether there is a suitable option available. The answer will be different depending on whether you want something that will pay out a guaranteed sum on a particular date vs something that might go down but nowhere near as much as equities vs something that may go up when equities go down but could crash itself.

I would like something which will preferably go up when the market crashes. Not something which will itself crash. I'm not looking to short the market.

A gilt fund would be an example of something that may go up when the market crashes but can crash itself. Other examples would be gold and commodities. I'm not aware of any investment where you can decouple the two and get something that will go up when the market crashes but has a low loss potential. You are probably asking the impossible.

1404 said:
I'm happy to keep a chunk of money (15%-30% of my investible funds) in cash for this eventuality. I've been doing this for a while. But I was thinking that by having bonds I may actually see some capital gains when the crash happens.

To get that to any appreciable extent, you must hold a longer duration fund, but that will give you interest rate risk. A vanilla gilt fund can (and recently has) gone down 30%+. Maybe a fall of that magnitude is once in a lifetime, but 10-20% falls would not look that out of the ordinary. Here is IGLT, which you proposed above:

Looking at that chart, now seems like a good time to buy that fund.  It is at a historical low.

Not necessarily. It has not fallen to a bargain price the way you might view a developed world equities chart. It has simply reversed the rises of the post-GFC QE/low interest rates years. Interest rates are now back to 'normal' levels (add as many inverted commas as you like around that) and the price of the fund reflects that, because the gilts it holds will mostly be paying very low coupons compared to new issues, so the fund price has fallen to reflect that. Don't expect the price to bounce back to £15.

masonic

1404 said:

masonic said:

1404 said:

masonic said:

1404 said:

I would like to have some bonds in case of a crash.

Perhaps it would be better to think about what outcome you want from an investment "in case of a crash", and then it may be possible to assess whether there is a suitable option available. The answer will be different depending on whether you want something that will pay out a guaranteed sum on a particular date vs something that might go down but nowhere near as much as equities vs something that may go up when equities go down but could crash itself.

I would like something which will preferably go up when the market crashes. Not something which will itself crash. I'm not looking to short the market.

A gilt fund would be an example of something that may go up when the market crashes but can crash itself. Other examples would be gold and commodities. I'm not aware of any investment where you can decouple the two and get something that will go up when the market crashes but has a low loss potential. You are probably asking the impossible.

1404 said:
I'm happy to keep a chunk of money (15%-30% of my investible funds) in cash for this eventuality. I've been doing this for a while. But I was thinking that by having bonds I may actually see some capital gains when the crash happens.

To get that to any appreciable extent, you must hold a longer duration fund, but that will give you interest rate risk. A vanilla gilt fund can (and recently has) gone down 30%+. Maybe a fall of that magnitude is once in a lifetime, but 10-20% falls would not look that out of the ordinary. Here is IGLT, which you proposed above:

Looking at that chart, now seems like a good time to buy that fund.  It is at a historical low.

You said that you didn't want an inversely correlated investment that could crash. I posted a chart illustrating your proposed investment can crash. Have you now changed your mind about that?

If interest rates go back down to 0.25% then it is currently a bargain. But how likely is that? More or less likely than Trump winning the US election, pulling all support for Ukraine and setting off another wave of inflation that sends interest rates even higher?

GeoffTF

1404 said:

But in the Treasuries funds I am interested in (VUTY and IBTM), they are priced in GBP.  So does that mean they are GBP hedged?

No it does not. If they are hedged into GBP it will say so.

aroominyork

GeoffTF said:

1404 said:

But in the Treasuries funds I am interested in (VUTY and IBTM), they are priced in GBP.  So does that mean they are GBP hedged?

No it does not. If they are hedged into GBP it will say so.

I find it's not always clear if a fund is hedged. Sometimes you have to root around to find out. There might just be an 'H' in the descriptor. For example, compare these where, from what I can see, the first is hedged:

https://www.trustnet.com/factsheets/O/BPGE/man-glg-dynamic-income-i-h-gbp

https://www.trustnet.com/factsheets/O/AXP1C/man-glg-dynamic-income-d-acc-usd

1404

masonic said:

1404 said:

masonic said:

1404 said:

masonic said:

1404 said:

I would like to have some bonds in case of a crash.

Perhaps it would be better to think about what outcome you want from an investment "in case of a crash", and then it may be possible to assess whether there is a suitable option available. The answer will be different depending on whether you want something that will pay out a guaranteed sum on a particular date vs something that might go down but nowhere near as much as equities vs something that may go up when equities go down but could crash itself.

I would like something which will preferably go up when the market crashes. Not something which will itself crash. I'm not looking to short the market.

A gilt fund would be an example of something that may go up when the market crashes but can crash itself. Other examples would be gold and commodities. I'm not aware of any investment where you can decouple the two and get something that will go up when the market crashes but has a low loss potential. You are probably asking the impossible.

1404 said:
I'm happy to keep a chunk of money (15%-30% of my investible funds) in cash for this eventuality. I've been doing this for a while. But I was thinking that by having bonds I may actually see some capital gains when the crash happens.

To get that to any appreciable extent, you must hold a longer duration fund, but that will give you interest rate risk. A vanilla gilt fund can (and recently has) gone down 30%+. Maybe a fall of that magnitude is once in a lifetime, but 10-20% falls would not look that out of the ordinary. Here is IGLT, which you proposed above:

Looking at that chart, now seems like a good time to buy that fund.  It is at a historical low.

You said that you didn't want an inversely correlated investment that could crash. I posted a chart illustrating your proposed investment can crash. Have you now changed your mind about that?

If interest rates go back down to 0.25% then it is currently a bargain. But how likely is that? More or less likely than Trump winning the US election, pulling all support for Ukraine and setting off another wave of inflation that sends interest rates even higher?

Interest rates on both sides of the Atlantic are supposedly coming down this year, so that will send the value of these three bond funds up?

As would a recession or crash, if those things were to happen this year.

1404

aroominyork said:

1404 said:

masonic said:

1404 said:

masonic said:

1404 said:

I would like to have some bonds in case of a crash.

Perhaps it would be better to think about what outcome you want from an investment "in case of a crash", and then it may be possible to assess whether there is a suitable option available. The answer will be different depending on whether you want something that will pay out a guaranteed sum on a particular date vs something that might go down but nowhere near as much as equities vs something that may go up when equities go down but could crash itself.

I would like something which will preferably go up when the market crashes. Not something which will itself crash. I'm not looking to short the market.

A gilt fund would be an example of something that may go up when the market crashes but can crash itself. Other examples would be gold and commodities. I'm not aware of any investment where you can decouple the two and get something that will go up when the market crashes but has a low loss potential. You are probably asking the impossible.

1404 said:
I'm happy to keep a chunk of money (15%-30% of my investible funds) in cash for this eventuality. I've been doing this for a while. But I was thinking that by having bonds I may actually see some capital gains when the crash happens.

To get that to any appreciable extent, you must hold a longer duration fund, but that will give you interest rate risk. A vanilla gilt fund can (and recently has) gone down 30%+. Maybe a fall of that magnitude is once in a lifetime, but 10-20% falls would not look that out of the ordinary. Here is IGLT, which you proposed above:

Looking at that chart, now seems like a good time to buy that fund.  It is at a historical low.

Not necessarily. It has not fallen to a bargain price the way you might view a developed world equities chart. It has simply reversed the rises of the post-GFC QE/low interest rates years. Interest rates are now back to 'normal' levels (add as many inverted commas as you like around that) and the price of the fund reflects that, because the gilts it holds will mostly be paying very low coupons compared to new issues, so the fund price has fallen to reflect that. Don't expect the price to bounce back to £15.

There doesn't seem to be much downside risk to these three funds either though?  Only if interest rates in the UK & US rise, which is entirely possible but unlikely.  They are more likely to start coming down.  Especially if something breaks (eg banks).

masonic

1404 said:

Interest rates on both sides of the Atlantic are supposedly coming down this year, so that will send the value of these three bond funds up?

It might to some extent, depending on what actually happens vs what markets expect. Interest rates may not come down as much as expected, or at all. If inflation begins to bite again, interest rates may need to go up. So how much is already priced in and where are rates actually going to go?

1404 said:
As would a recession or crash, if those things were to happen this year.

The UK has already entered recession and that hasn't caused any significant movement because the base rate was not cut in response. There doesn't seem to be any expectation that the recession will deepen.

There was a crash between Feb-Mar 2020 and this fund went up less than 3%. There was a 15% drop in Nov 2021 - June 2022 and this fund went down 16%.

What matters is what happens to interest rates, not equities, and interest rates need to be set with reference to both the economy and inflation.

OldScientist

aroominyork said:

1404 said:

masonic said:

1404 said:

masonic said:

1404 said:

I would like to have some bonds in case of a crash.

Perhaps it would be better to think about what outcome you want from an investment "in case of a crash", and then it may be possible to assess whether there is a suitable option available. The answer will be different depending on whether you want something that will pay out a guaranteed sum on a particular date vs something that might go down but nowhere near as much as equities vs something that may go up when equities go down but could crash itself.

I would like something which will preferably go up when the market crashes. Not something which will itself crash. I'm not looking to short the market.

A gilt fund would be an example of something that may go up when the market crashes but can crash itself. Other examples would be gold and commodities. I'm not aware of any investment where you can decouple the two and get something that will go up when the market crashes but has a low loss potential. You are probably asking the impossible.

1404 said:
I'm happy to keep a chunk of money (15%-30% of my investible funds) in cash for this eventuality. I've been doing this for a while. But I was thinking that by having bonds I may actually see some capital gains when the crash happens.

To get that to any appreciable extent, you must hold a longer duration fund, but that will give you interest rate risk. A vanilla gilt fund can (and recently has) gone down 30%+. Maybe a fall of that magnitude is once in a lifetime, but 10-20% falls would not look that out of the ordinary. Here is IGLT, which you proposed above:

Looking at that chart, now seems like a good time to buy that fund.  It is at a historical low.

Not necessarily. It has not fallen to a bargain price the way you might view a developed world equities chart. It has simply reversed the rises of the post-GFC QE/low interest rates years. Interest rates are now back to 'normal' levels (add as many inverted commas as you like around that) and the price of the fund reflects that, because the gilts it holds will mostly be paying very low coupons compared to new issues, so the fund price has fallen to reflect that. Don't expect the price to bounce back to £15.

Given a price of roughly £10.5 and longer term yields of about 4% then, assuming gilt yields do not change again (highly unlikely, but go with it), the accumulating version of the fund would recover to a value of about £15 in about 9 years time (i.e., not too far from the duration of the fund). I presented a few simulations of this in the thread

https://forums.moneysavingexpert.com/discussion/6470635/how-long-do-bond-funds-take-to-recover-after-a-sharp-rise-in-yields

aroominyork

Sure, you can calculate the price over time based on a certain yield. The key word in my post was not to expect the price to "bounce" back.

coastline

Just as many say the US equity markets are overvalued and in a bubble then it could be argued the gilt/bond market was also in a bubble . Who would have imagined a decade long period of near zero rates. ? That's history now . Here's that chart from earlier and I'm using 2005 as a reference point. Nearly 20 years apart from income . As suggested earlier current rates could be considered " normal " ??

b6zn3lv0kwre.png (662×436) (v-cdn.net)

The M&G Gilt fund with a reasonable benchmark included . Even before the pandemic there's still volatility but not enough to cause investors to question their asset allocations. Could be argued everyone is happy ? Now set the same chart from 2005 -2024. The M&G fund is up around 50%.

Chart Tool | Trustnet

Hopefully this has worked with the 2005-24 period

 [img]https://i.postimg.cc/ncf6wQDL/image.png[/img]

Just for an idea I've selected the same period 2005-24 in the base rate accumulator and it's 37% and currently running 5.25% PA ?  . 50% is better than 37% no doubt but we ain't got no volatility which has been a major concern to many investors. Even in calmer waters there's still 10% volatility with gilts/bonds. Maybe use a STMMF , gilt/bond and platform cash ? That equity crash mentioned could be topped up from platform cash ? All speculation.

  Actuarial Solutions | Base Rate Roll-up - Actuarial Solutions (aprllp.com)