Thoughts on Bond Funds - Schroder High Yield Opportunities???

MetaPhysical

I want to put 50% of my pension (and ISA) into a Bond Fund.  I am 58.  I will keep the rest as equities and cash.
This is my split I'm going to do:
PENSION:  Bonds 50%, Global Equities 40%, MM Cash 10%.
ISA: Bonds 50%, Global Equities 50%.

I was looking at the Schroder High Yield Opportunities Fund to fulfil the Bonds portion.  Some colleagues also keep money in this - their whole pot in one case.  It charges a quite hefty 0.7% but cannot fault its performance.
Any thoughts on this please?
https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000O977

masonic

It looks expensive. Is it a good idea to invest in low credit rating bonds when credit spreads are so tight? What did you think about its performance during 2020 or in 2008 compared with global equities? For a long term annualised performance of about 5%, I would not be accepting a loss-potential of 30% in a space of a few months.

dunstonh

I was looking at the Schroder High Yield Opportunities Fund to fulfil the Bonds portion.  

In general, people use bonds because they wan't to reduce the risk on their portfolio.   Schroder High Yield OPPs is a higher risk bond fund with similar loss potential to equities.   So, you wouldn't be using this to reduce risk.  

The question then needs to be asked: Why are you not increasing your equity ratio, as equities have more upside than bonds?

 Some colleagues also keep money in this - their whole pot in one case.

Just because some people do silly things, doesn't mean you should follow

 It charges a quite hefty 0.7% but cannot fault its performance.

It has underperformed equities despite having a similar loss potential.



Guess which is equities and which is the high yield bonds!

MetaPhysical

Many thanks for your commentary,  I am all ears and learning and appreciate your thoughts,  So, without giving financial advice (respecting the forum rules) are there any bond funds folks can suggest I research so that I can add some counterweight to my equities please?  I am pretty sure what I am doing with equities, MM and commodities.  It is bond funds that confuse me a bit.  I know what bonds are and how they work.  I'm just confused about which types to select.

masonic

If you are looking to dampen the volatility of your other investments, then it's the boring type of bond fund you'd be looking towards. Choices would be Government or Aggregate (mix of Govt + investment grade corporate). You could pick a global fund, or UK gilt fund. There is less justification to diversify geographically if you live in a country that's not going to default on its debt. You could include inflation linked. Be aware that unlike your MM fund(s), which have ultra-short duration, most bond funds are long duration and hence have interest rate sensitivity, meaning they tend to go down when interest rate expectations rise and vice versa. A mix of MM and longer duration can be used to dampen this if required. The Vanguard Global Bond Index (or Aggregate Bond ETF) is a popular choice because it blends longer duration UK bonds with generally shorter duration US and European bonds (with currency hedging), so reduces duration risk. But you can get the same effect from a mix of MM + gilt index fund. You can also buy and hold individual gilts to maturity for a fixed return. You will also find specific short duration funds that are available.

MM is reaching the end of its hey day now that the yield curve is looking more normal, and you can get a better return by taking on some duration risk. Though duration was kryptonite when the world was used to 0.5% interest rates and had to recalibrate to the more normal ~5%.

Beddie

MetaPhysical said:

Many thanks for your commentary,  I am all ears and learning and appreciate your thoughts,  So, without giving financial advice (respecting the forum rules) are there any bond funds folks can suggest I research so that I can add some counterweight to my equities please?  I am pretty sure what I am doing with equities, MM and commodities.  It is bond funds that confuse me a bit.  I know what bonds are and how they work.  I'm just confused about which types to select.

It is a good fund and is lower risk than equities, which fits your requirements. However, it's probably not really suitable for 50% of your holdings. Perhaps something lower risk, such as a gilt or investment grade corporate bonds fund as mentioned above, could be added to the bond part of your portfolios, in order to reduce the overall risk and volatility.

Another good fund you might want to look at, but with a shorter track record, is Man Dynamic Income I H GBP.

Corporate bond funds: https://www.trustnet.com/fund/price-performance/o/ia-unit-trusts-and-oeics?sector=O:STERCOR&norisk=true&sortby=P11GBP_D_36M&sortorder=desc&PageSize=25

A mix of investment grades and duration there, plenty to choose from!

Just my thoughts, all other opinions are valid.