Anyone buying gilts right now?

matasymbol

poseidon1 said:

matasymbol said:

Hi All,

Appreciate if you can provide any thoughts on my circumstances.  I'm in my fourties and thinking of retiring in the next few years and have approximately the following 

1. £900,000 - Various index fund equities although mostly US
2. £1,400,000 - UK bank interest savings spread across many account to ensure the 85,000 protection limit isn't breached
3. £500,000 - UK Gilts Mostly T26 maturing Jan 2026 with a large capital gain ~ 4%. from now and low coupon
4. £200,000 - Investment ISA global index fund

Only in the last few months I've purchased gilts as I know as a 40% tax payer even with 4% CGT the net interest to compare for a bank would be 6.6% which currently compares against ~4.5-4.7% so much more favourable. 

I know everyone indicates to have a diversified portfolio however I'm thinking I should purchase a lot more gilts at least until I'm only a 20% low rate tax payer eg perhaps another 600,000 of gilts at least.  There is a risk of course that the UK defaults on paying them bank perhaps marginally more than the FCFS protection ever fails however it seems very neglible. I don't feel comfortable with more equities at this stage and the balance feels right I just think I should assign more to gilts than bank savings

If others are in a similar situation I'd appreciate your thoughts

Although you clearly have an understanding of gilts from a tax efficiency point of view and evidently capable of making and acting on your own decisions, nonetheless you might benefit from delegating the gilts aspect of your investment portfolio to a specialist stockbroker who can build the fixed income component of your portfolio in accordance with your requirements.

A number of stockbroker gilt portfolio management services have been emerging of late, with a few examples in the links below.  This is not an endorsement of any of these services, but for someone in your position they could add value notwithstanding the fees involved. Might be worth a conversation with a couple of them.

thanks I appreciate you sharing these links. I didn't initially think there was much to gain from any management service as the gilts had low fees however I'll look into this when I can. 

hallmark

Altior said:

There will surely be significant political pressure for the BoE to eventually start buying again (instead of selling).

Personally I've been buying some ITs that are highly correlated with the long gilt market again, for example INPP which is yielding over 7% now. The underlying price should recover, even if it doesn't I'm quite happy to hold at an asset that's yielding +7% at purchase price, with dividends being raised annually. 

Thanks for that. Do you have any other examples of ITs along those lines?  I wasn't aware of INPP (I don't think it's registered at THE AIC which is where I tend to lookup any possible IT candidates)..

george4064

Whilst not for me, I bought a gilt ETF tracker (ticker IGLT) for Mum's ISA. More of an medium-term active tilt than a long-term buy n hold position, so intend to hold for up to 2/3 years, hopefully by which they will have increased in value somewhat whilst paying a half decent level of income.

Charzhin0

george4064 said:

Whilst not for me, I bought a gilt ETF tracker (ticker IGLT) for Mum's ISA. More of an medium-term active tilt than a long-term buy n hold position, so intend to hold for up to 2/3 years, hopefully by which they will have increased in value somewhat whilst paying a half decent level of income.

I'm also managing my Mums ISA savings, which is currently in a money market fund CSH2 and has been for 1 year now. I am still learning about GILTS/Bonds so I'm unsure of these other products, but what advantage would this ETF tracker $IGLT have over a MMF or buying a simple gilt? I'm looking at the chart and its dropped 9% since last September. 

AlanP_2

hallmark said:

Altior said:

There will surely be significant political pressure for the BoE to eventually start buying again (instead of selling).

Personally I've been buying some ITs that are highly correlated with the long gilt market again, for example INPP which is yielding over 7% now. The underlying price should recover, even if it doesn't I'm quite happy to hold at an asset that's yielding +7% at purchase price, with dividends being raised annually. 

Thanks for that. Do you have any other examples of ITs along those lines?  I wasn't aware of INPP (I don't think it's registered at THE AIC which is where I tend to lookup any possible IT candidates)..

Most if not all of the infrastructure ITs are on a good dividend yield as there prices are very depressed.

I hold a couple and am happy to take the dividends and hope that share prices go up as and when interest rates fall and inflation concerns reduce.

Might be a while yet 😉 

george4064

Charzhin0 said:

george4064 said:

Whilst not for me, I bought a gilt ETF tracker (ticker IGLT) for Mum's ISA. More of an medium-term active tilt than a long-term buy n hold position, so intend to hold for up to 2/3 years, hopefully by which they will have increased in value somewhat whilst paying a half decent level of income.

I'm also managing my Mums ISA savings, which is currently in a money market fund CSH2 and has been for 1 year now. I am still learning about GILTS/Bonds so I'm unsure of these other products, but what advantage would this ETF tracker $IGLT have over a MMF or buying a simple gilt? I'm looking at the chart and its dropped 9% since last September. 

To answer your questions in turn:

1. What advantage would this ETF tracker $IGLT have over a MMF? I would focus more on the 'differences' rather than the 'advantages'. IGLT is more risky as it can rise or fall in value (remember the inverse relationship between gilt yields and gilt prices), however it has the potential to produce a higher level of return than a MMF. Whereas a MMF like CSH2 will simply slowly rise in-line with the rate of SONIA, which moves with changes to interest rates.

Note a big difference in that something like IGLT is likely to change in price due to changes in gilt yields which is driven by changes in expected future interest rates, whereas a MMF's return will change with changes to the rate of short term money markets (closely linked to central bank interest rate).

2. What advantage would this ETF tracker $IGLT have over a single gilt? Big benefit is diversification. Changes in market sentiment can mean that gilts at a certain maturity can be impacted more than gilts at other maturities, by holding a single gilt you could be unlucky or lucky here. Buying a broader gilt based ETF will effectively remove that specific gilt risk, and you'll get a return in-line with the broader gilt market.

Also, there is also re-investment risk. This is because maturity proceeds of the gilts held by the ETF will be re-invested and if rates move, could be re-invested at a lower rate than what gilts are currently at now. 

Furthermore, with a single gilt you can simply hold it to maturity and you'll get the nominal amount back plus any interest along the way. With a gilt ETF, since its constantly re-investing gilts that have matured into other gilts if you want to sell you may get back less than you invested. Mind you, same principle applies if you sell a single gilt before its stated maturity date. And vice versa, you could get back more than you paid depending on market movements.

TheGreenFrog

IGLT (or any similar fund) and a single gilt very different things, as @george4064 says.  The differences will vary depending on the maturity of the single gilt, but irrespective of that the differences are considerable.  They are two different animals.  On the other hand a very short-dated gilt (eg 15m or less to maturity) will have some overlap with an MMF.  If you are looking for a cash equivalent investment for whatever reason (eg think equity markets overvalued and waiting for them to fall, or need to preserve capital as may be needed in near term) then very short-dated gilt a viable alternative to an MMF, although personally if in an ISA I would stick with MMF.

Adyinvestment

hallmark said:

Thanks for that. Do you have any other examples of ITs along those lines?  I wasn't aware of INPP (I don't think it's registered at THE AIC which is where I tend to lookup any possible IT candidates)..

Here you go
https://www.theaic.co.uk/companydata/international-public-partnerships

It is a "next generation dividend hero" International Public Partnerships which is infrastructure

Alexland

Alexland said:

I guess the government will need to do something (perhaps austerity measures, as much as they might not want to) to shore up the prices soon so this opportunity might not last long.

Well there was some talk of stripping benefits from the disabled (having already gone for the dead and elderly) but it looks like some luck on inflation has provided a breathing window and gilt prices have started rising again. Was that the bottom of the gilt market? Will that near collision cause the government to be a lot more determined and focused on what needs to be done to reassure markets going forwards? Nothing like a panic, getting a trashed reputation and nearly losing your job to focus a chancellor's mind perhaps?

I've seen some talk of the lower than expected inflation giving scope for the BoE to cut interest rates but I can't see that happening while the currency is still depressed as that would just lead to future inflation on imported goods.

masonic

Here's hoping. Although the BoE have a role to play too. Dialling down the pace of QT would make an impact and avoid the need for stimulatory rate cuts further down the road.