Bond ETF suggestions

masonic

aroominyork said:

masonic said:

Monevator has published a series of articles weighing up use of broad commodities as an alternative diversifier. Worth a read at least.

Yes - there is a model which looks at low/high growth and rising/falling inflation, and identifies the best investments for each of the four combinations. Commodities are in the high growth + rising inflation quadrant, along with high yield bonds. It really depends on how many scenarios you want your diversification to try to match.

I don't think that bears out historically. Tends to be more of a stagflation environment when commodities come into their own. The 2022 bear market being the most recent example, but also the early 1970s and post war period. HY would not have been a good place to be during those times. Rising inflation tends to push up interest rates and push down bond prices and high yield isn't immune to that.

aroominyork

Monevator (top) and Pensioncraft (bottom) take issue with you. Wouldn't there be excess demand for commodities during periods of growth, driving up their price?

Is 2022 a good reference point, since the main reason for the increase in commodity prices was the sudden fall in Ukrainian supplies?

InvesterJones

I've seen similar cycle diagrams - I think the pensioncraft one is (for once) not as accurate is their usual content - cash I wouldn't put in a high inflation quadrant for example - monevator has this more like bonds which I'd agree with. IMHO high yield bonds become relevant when the credit risk spread (something I know you've been looking to measure!) is high but you still think they'll be safer than equities (or the compensation is greater than the risk at least).. however we're looking like we're at the high inflation, demand moving to weakening, area and credit spreads are (reportedly ) minimal - perhaps everyone is reading the pensioncraft diagram and have piled into HY so much they don't need to offer much risk premium  

Energy/Utilities is also something I think Ramin has changed his mind on now as well - they're more correlated with tech than they used to be.

granta

Thank you all for the suggestions and commentary. This is quite a new area for me so need to put some time in to digest and learn.
I did look at the Monevator site briefly before I posted but I could no longer find the articles about bonds and his model etf portfolios but will have another look!

masonic

aroominyork said:

Monevator (top) and Pensioncraft (bottom) take issue with you. Wouldn't there be excess demand for commodities during periods of growth, driving up their price?

Is 2022 a good reference point, since the main reason for the increase in commodity prices was the sudden fall in Ukrainian supplies?

There are a few points here. The first is to be careful not to conflate the economy and the stockmarket when discussing the growth part of the cycle. Economic data is lagging (typically released a few months after the period in question and revised upward or downward for up to a year thereafter as data rolls in), whereas the stockmarket gives almost instant feedback and is forward looking. That alone can place things in different parts of the cycle. Businesses can grow their profits and valuation through increasing their revenue and/or reducing their costs.

Focusing in on commodities, the single largest element of most commodities indices is gold (~15%, other precious metals ~5%). Energy makes up a third, agriculture and livestock make up more than a third, and industrial metals about 15%. These are all affected differently. Ramin even placed precious vs industrial metals on opposing sides of the economic axis and energy in the middle. Agriculture is affected primarily by weather patterns and geopolitics - people still need to eat during recessions, so it's mostly supply-side. Energy also has a large geopolitical component, as we have seen recently, but is also linked to industrialisation in emerging markets on the demand side, and the whims of cartels on the supply side. So simple arguments made on the basis of demand only are very much flawed. If you break down and plot different commodities separately on the two axes, I think you'd have quite a spread.

The Ukraine conflict, and before that conflicts in the middle east and other wars, famines, droughts etc, are highly relevant, as these types of events are not going away and could worsen. It's the Achilles heel of globalisation. They can contribute to and sustain a low growth high inflation situation as the effects ripple outward.

Moving on to HY bonds, I'd put them earlier in the cycle. They often have a high degree of correlation with equities, and as InvesterJones says, are like equities with some guard-rails limiting upside and downside somewhat. Same arguments as I made upthread around performance as inflation and consequently interest rates move up.

aroominyork

masonic said:

aroominyork said:

Monevator (top) and Pensioncraft (bottom) take issue with you. Wouldn't there be excess demand for commodities during periods of growth, driving up their price?

Is 2022 a good reference point, since the main reason for the increase in commodity prices was the sudden fall in Ukrainian supplies?

Economic data is lagging (typically released a few months after the period in question and revised upward or downward for up to a year thereafter as data rolls in), whereas the stockmarket gives almost instant feedback and is forward looking. 

I recall an advance sign, possibly apochryphal, of a recovering economy was an increase in new orders for London black cabs. "I had that Chancellor geezer in the back of my cab and he was saying things'll soon be on the up."

masonic said:

aroominyork said:

Monevator (top) and Pensioncraft (bottom) take issue with you. Wouldn't there be excess demand for commodities during periods of growth, driving up their price?

Is 2022 a good reference point, since the main reason for the increase in commodity prices was the sudden fall in Ukrainian supplies?

Focusing in on commodities, the single largest element of most commodities indices is gold (~15%, other precious metals ~5%). Energy makes up a third, agriculture and livestock make up more than a third, and industrial metals about 15%. These are all affected differently. Ramin even placed precious vs industrial metals on opposing sides of the economic axis and energy in the middle. Agriculture is affected primarily by weather patterns and geopolitics - people still need to eat during recessions, so it's mostly supply-side. 

Very interesting. I'd be interested to know Monevator's justification for lumping all commodities together. (I had to look up 'softs' from Ramin/Pensioncraft's graphic and, for the uninitiated among us, they are grown rather than mined - essentially agricultural and livestock.)

Newbie_John

Just piggy backing on this topic, regarding VAGS and VAGP, am I correct thinking that the entire profit here comes from capital gain? 
which for VAGP would be -0.8% for the past year and for VAGS +2.72% ?

or are there any other "income" routes? 

masonic

Newbie_John said:

Just piggy backing on this topic, regarding VAGS and VAGP, am I correct thinking that the entire profit here comes from capital gain? 
which for VAGP would be -0.8% for the past year and for VAGS +2.72% ?

or are there any other "income" routes? 

No, VAGP distributes some interest income and may have additional ERI (as interest), while VAGS does not make distributions, so all of its income is included in ERI.

gesdt50

Can anyone suggest if there are any reiatively  safe equities OR are all equities very risky?

wmb194

gesdt50 said:

Can anyone suggest if there are any reiatively  safe equities OR are all equities very risky?

Not all companies are the same and some are more speculative than others, if that's what you're asking. 

What are wanting to do? Invest in single company shares or are you looking for a collective investment to spread the risk a bit? If you want something at the safer end you could look at e.g., 'blue chip' equity income funds, the well known 'dividend hero' in the Investment Trust space is City of London Investment Trust plc (LSE:CTY) and it owns shares in the likes of HSBC, Shell, BAe, Unilever, Tesco, BAT and Lloyds Bank.

There are similar ETFs as well e.g., iShares UK Dividend (LSE:IUKD) but they are not actively managed and can be a bit dumb with their selections.

https://www.janushenderson.com/en-gb/uk-investment-trusts/trust/the-city-of-london-investment-trust-plc/

https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=UGI&sortid=Name&desc=false