Help with investing in UK Gilts

ali_bear

Just looking for the first time at putting some of my S&S ISA into a UK Gilt 

On my platform of choice there is a graph of the fund value that shows it was hovering around £130 a few years ago and now its dropped to around £100. This confuses me because I thought the whole point of Gilts was the value is rock solid and it just grows with a steady income? What am I missing. 

Alexland

If you hold a gilt to maturity then the outcome is certain you will get the face value and all the coupon payments along the way.
In the period between being issued and maturity it's market resale value will fluctuate as it depends how attractive that coupon is compared to other investment options a market buyer might choose. So when interest rates went up in recent years then buying into a predetermined low rate of return is less attractive and so the market value needs to be lower to create an attractive return rate. The longer the date to maturity the more sensitive the value will be to changes in interest rates.

wmb194

ali_bear said:

Just looking for the first time at putting some of my S&S ISA into a UK Gilt 

On my platform of choice there is a graph of the fund value that shows it was hovering around £1.30 a few years ago and now its dropped to around £1.00. This confuses me because I thought the whole point of Gilts was the value is rock solid and it just grows with a steady income? What am I missing. 

They move down or up towards their par values as they approach maturity. This might be what you’re seeing; which gilt is it?

ali_bear

Thanks yes that would explain it. Looking at TR27 

Albermarle

When interest rates were at a very low level for many years, Gilt/bond funds performed very well. When interest rates started to climb again in more recent years, gilts/bonds became unattractive and their price plummeted, with only some part recovery later.
Normally gilts are a more stable investment than equities, but not during 22/23.

Alexland

Albermarle said:

When interest rates started to climb again in more recent years, gilts/bonds became unattractive and their price plummeted, with only some part recovery later..

To a contrarian they were of course unattractive when the price was high (we used to call them 'a return free risk') and are more attractive now the price has corrected and they are offering a reasonable forward return without carrying the risk of unwinding ultra low interest rates. Higher return for lower risk means they are deserving a place in my portfolio again. I'm banking some of the gains for being uncomfortably 100% equities while I couldn't justify holding bonds.

ali_bear

With that TR27 it is maturing in a few years so not so much risk if I chose to sell it before then, and a steady 4.25% coupon. But quite a lot to consider for longer terms such as T46. 

My platform doesn't say what the face value is - is it always £100 for UK gilts? 

What are the advantages of buying into an ETF that is invested in Gilts/bonds, apart from diversification? 

InvesterJones

ali_bear said:

With that TR27 it is maturing in a few years so not so much risk if I chose to sell it before then, and a steady 4.25% coupon. But quite a lot to consider for longer terms such as T46. 

My platform doesn't say what the face value is - is it always £100 for UK gilts? 

What are the advantages of buying into an ETF that is invested in Gilts/bonds, apart from diversification? 

Gilts are £100 yes. ETFs can give you access to other markets, and potentially have some cost saving (though then you have a fund fee on top), but mainly you're letting someone else manage the buy/sell strategy.

Alexland

Buying a bond fund/ETF is a bit more complicated as they will be churning a portfolio of different dated fixed income investments to reinvest when bonds come to maturity, to stay within their target asset allocation and to grow or shrink the assets when other investors buy or sell units. These impurities are just something to consider not a reason to avoid as you can still get good returns from them.

poseidon1

InvesterJones said:

ali_bear said:

With that TR27 it is maturing in a few years so not so much risk if I chose to sell it before then, and a steady 4.25% coupon. But quite a lot to consider for longer terms such as T46. 

My platform doesn't say what the face value is - is it always £100 for UK gilts? 

What are the advantages of buying into an ETF that is invested in Gilts/bonds, apart from diversification? 

Gilts are £100 yes. ETFs can give you access to other markets, and potentially have some cost saving (though then you have a fund fee on top), but mainly you're letting someone else manage the buy/sell strategy.

Ehh, not always £100. Index linked gilts?

I think the OP is absolutely entitled to be confused about gilt pricing and the predictability of investment returns related thereto. 

With single company corporate bonds, the larger platforms insist potential investors pass  a ' sophisticated investor' test to demonstrate a degree of understanding  prior to making purchases. Although, the government is unlikely to go bust and so lose all your money, I do feel there are sufficient complexities related to gilt pricing to justify a similar test.

For those of us familiar and conversant with all the nuances of bond/gilt investing and different means to do so, I think we have to accept there is no replacement for extensive self research by prospective new investors. There is only so much one can meaningfully convey to newbie investors in these types of forums, without falling  into the trap of a little information being a dangerous thing.

ali_bear

I'm happy to admit being completely new to this type of investment. And I appreciate your collective help with the understanding that it is limited in scope and depth.