Gilt vs. wealth preservation fund for less than 2 years liability

itwasntme001

OldScientist said:

itwasntme001 said:

OldScientist said:

According to HL/morningstar

CGT appears to be currently holding about 70% in cash/bonds (both individual gilts and US treasuries), 15% in equities and 15% in 'other' (you'd have to dig further to find exactly what that is).

PNL is currently holding about 10% gold, 60% bonds and cash, and 30% equities

Cannot find the weighted duration of the bond component of either fund, so not sure how sensitive to yield changes they will be (or how much is already baked in). Since some of the bond holdings are US treasuries, I'm also not sure how sensitive to exchange rates they are (possibly currency hedged).

Individual short term gilts will give certainty to your cash flow and the amount at maturity, while cash (in the form of short term MMF or fixed rate savings accounts) or a short term gilt fund (e.g., ishares under 5 years - the duration of about 2 years nearly matches that of your 'liability') will be more sensitive to interest rate changes but shouldn't change too much and are likely to give rates of return similar to those of the individual gilts (assuming the market has priced things about right!).

I can't find PNL info on duration but CGT have a presentation that states duration on their holdings and if I remember their index linked holdings, which are 50% of the portfolio, have a duration of 6?

So if real yield rise 1% then that is a loss of 3% on the NAV.

The only reference I can find pertaining to maturity for PNL is on page 25 of the 2023 annual report (now a year out of date) where 47.5% of the fixed income was under 1 year, 26.4% between 1 and 5 years, and 26.1% over 5 years. If you assume the categories are 6 months, 3 years and 7.5 years, then the weighted maturity would be about 3 years (and duration a bit less than that).

In each case, I think it is the 30% not in fixed income that presents a risk - whether that is acceptable would depend on whether, e.g., a 50% drop in equities and consequently a 15% drop in the NAV would make that much difference to what you need the money for.

Thanks.  The risk-on side of PNL might expose to some volatility, particularly the large gold holding.  These are medium term investments so for my now short term holding period, I think its not really worth the risk.  I can guarantee myself 4.5% return in a short duration gilt.  The funds I would imagine might do that in a good year.