Portfolio Risk Measurement

aroominyork

chiang_mai said:

aroominyork said:

chiang_mai said:

My bonds are all short duration, this part is very clean.

Short duration bonds are of course less volatile than intermediates through less interest rate sensitivity, but in normal market conditions you have less of the inverse correlation which can reduce overall portfolio risk during an equity crash. Do you only hold govt bonds or also corporates?

I am tilted towards short duration, mostly for high yields (which tend to be short) and for gilts I might want to cash in if there is a prolonged equity crash. (I also hold a short duration strategic bond fund, just because I think it is well managed.) I still have a chunk of intermediate gilt/global aggregate index funds.

I'm holding Artemis short duration, Prem Mitton Strategic and PIMCO GIS low duration. I also hold the bond elements of a couple of MA funds and these are typically Gilts or US Treasuries. 

OK, you've got me looking at short durations to replace some of my Vanguard global index bond, since I'm increasingly thinking corporate bonds are the area where it most pays to use active management. What do you think of Muzinich Global Short Duration IG Fund?

chiang_mai

aroominyork said:

chiang_mai said:

aroominyork said:

chiang_mai said:

My bonds are all short duration, this part is very clean.

Short duration bonds are of course less volatile than intermediates through less interest rate sensitivity, but in normal market conditions you have less of the inverse correlation which can reduce overall portfolio risk during an equity crash. Do you only hold govt bonds or also corporates?

I am tilted towards short duration, mostly for high yields (which tend to be short) and for gilts I might want to cash in if there is a prolonged equity crash. (I also hold a short duration strategic bond fund, just because I think it is well managed.) I still have a chunk of intermediate gilt/global aggregate index funds.

I'm holding Artemis short duration, Prem Mitton Strategic and PIMCO GIS low duration. I also hold the bond elements of a couple of MA funds and these are typically Gilts or US Treasuries. 

OK, you've got me looking at short durations to replace some of my Vanguard global index bond, since I'm increasingly thinking corporate bonds are the area where it most pays to use active management. What do you think of Muzinich Global Short Duration IG Fund?

Unexciting but probably safe, as long as interest rates don't increase. One step up from MM, except that it appears to be CHF hedged. I can't see any obvious risk other than it is low yield but certainly better than the VG fund you hold. Lipper rates it 4 out of 5 for preservation but I can't see why. The FM is located in Ireland but I can't see the fund domicile.

aroominyork

Maybe unexciting, but context is everything and my fixed income is currently:

Man Dynamic Income: 26%

Artemis Short-Duration Strategic Bond: 21%

Man Sterling Corporate Bond : 16%

Vanguard Global Bond Index: 12%

iShares Up to 10 Years Gilts: 10%

Fidelity Index UK Gilt: 8%

Index-linked gilt T29: 8%. 

I am not looking for madly exciting as a Vanguard substitute. Of the three you hold, I already have enough Artemis; Pimco GIS is largely US mortgage like Fannie Mae which I don’t understand and don’t want to dig into; Premier Miton looks good but – poor excuse – I am trying to avoid funds that distribute monthly. Being very short duration, Muzinich is surely a risk if rates fall more than expected, not if they increase? Re. hedging, it is Sterling hedged, not CHF.

Bostonerimus1

My portfolio is risky being 80% US and international equity index funds, 10% is in MMF and 10% in the bonds held in the Vanguard Wellesley Income fund. However, my retirement income is very low risk being from an index linked workplace DB pension, US social security, UK SP, a small lifetime annuity and rent from the flat I own. 

chiang_mai

aroominyork said:

Maybe unexciting, but context is everything and my fixed income is currently:

Man Dynamic Income: 26%

Artemis Short-Duration Strategic Bond: 21%

Man Sterling Corporate Bond : 16%

Vanguard Global Bond Index: 12%

iShares Up to 10 Years Gilts: 10%

Fidelity Index UK Gilt: 8%

Index-linked gilt T29: 8%. 

I am not looking for madly exciting as a Vanguard substitute. Of the three you hold, I already have enough Artemis; Pimco GIS is largely US mortgage like Fannie Mae which I don’t understand and don’t want to dig into; Premier Miton looks good but – poor excuse – I am trying to avoid funds that distribute monthly. Being very short duration, Muzinich is surely a risk if rates fall more than expected, not if they increase? Re. hedging, it is Sterling hedged, not CHF.

I am far from being a bonds expert, but.....if interest rates rise, the value of the bond falls, if rates fall, the value increases.

Re, CHF, yes, that's what I intended....the perils of posting during 2am bathroom runs!

Your Man Dynamic surprises me, it's mostly junk and derivatives, that's too risky for my blood but each to their own. I tend to strongly favour higher credit ratings and short duration combined plus no more than 10% derivatives. I should care more about the governement vs corporate ratio but the right combination with a decent yield is hard to find. Anyway, I'm at 30% bonds so that's my ceiling.....for now!

If you're looking for a lower risk corporate bond fund, this one might appeal:

https://global.morningstar.com/en-eu/investments/funds/0P0001O290/portfolio

It's investment grade and has returned 7% YTD, MS risk of 27, 98% BBB+, SD under 5 and duration of 4.45. Plus there's over 600 bonds in the fund which gives it some breathing room in case some fail, olus, it's very cheap.

chiang_mai

I'm now:

40% Equities
9% MA
30% Bonds
26% MM
6% Cash

A 50% fall in equities markets would see me anoyed but able to maintain my income out of cash/MM for four years, seven if I were to sell my bonds.....I think that's within my happiness threshold. 

aroominyork

chiang_mai said:

aroominyork said:

Maybe unexciting, but context is everything and my fixed income is currently:

Man Dynamic Income: 26%

Artemis Short-Duration Strategic Bond: 21%

Man Sterling Corporate Bond : 16%

Vanguard Global Bond Index: 12%

iShares Up to 10 Years Gilts: 10%

Fidelity Index UK Gilt: 8%

Index-linked gilt T29: 8%. 

I am not looking for madly exciting as a Vanguard substitute. Of the three you hold, I already have enough Artemis; Pimco GIS is largely US mortgage like Fannie Mae which I don’t understand and don’t want to dig into; Premier Miton looks good but – poor excuse – I am trying to avoid funds that distribute monthly. Being very short duration, Muzinich is surely a risk if rates fall more than expected, not if they increase? Re. hedging, it is Sterling hedged, not CHF.

I am far from being a bonds expert, but.....if interest rates rise, the value of the bond falls, if rates fall, the value increases.

If interest rates rise then new issues will offer better returns, so if you hold short duration bonds they will mature soon and you can buy the new issues. If you hold longer duration, you are stuck with your bonds for longer so the price to offload them will fall. Conversely, if interest rates fall, people who hold long dated bonds will see their price rise because the higher rate is locked in, while shorter dated bonds will have to be replaced soon with lower rate new issues. Hence a short duration fund is good to hold (compared to intermediate/long duration) if rates rise, but bad to hold if rates fall.

chiang_mai

aroominyork said:

chiang_mai said:

I am far from being a bonds expert, but.....if interest rates rise, the value of the bond falls, if rates fall, the value increases.

If interest rates rise then new issues will offer better returns, so if you hold short duration bonds they will mature soon and you can buy the new issues. If you hold longer duration, you are stuck with your bonds for longer so the price to offload them will fall. Conversely, if interest rates fall, people who hold long dated bonds will see their price rise because the higher rate is locked in, while shorter dated bonds will have to be replaced soon with lower rate new issues. Hence a short duration fund is good to hold (compared to intermediate/long duration) if rates rise, but bad to hold if rates fall.

Bear with me for a moment - If you hold a single bond and interest rates rise, the value of your bond will fall, until it reaches maturity when the full face value will be redeemed. That fall will be minimal where the maturity date is near but is neverthless a fall. If you are able to hold the bond until maturity, there is not an issue, but if you need to sell before, there will be a loss. Unless of course there is a sufficent number of bonds involved that are overlapped and laddered. The fact that new bonds with a higher yield become available, because rates have increased, is only pertinent if you have a maturing bond that you wish to replace. If you do not, you enter a period where the value is lower, until the matuirty date is reached......no? 

aroominyork

Sure your individual bond will mature at par, but other folk are buying newer issues and getting a higher return while you are stuck with your lower return. As you said, "The fact that new bonds with a higher yield become available, because rates have increased, is only pertinent if you have a maturing bond that you wish to replace"... and I am talking about bond funds where they are constantly churning bonds. 

chiang_mai said:

Your Man Dynamic surprises me, it's mostly junk and derivatives, that's too risky for my blood but each to their own. 

I'm not in search of junk but the manager has a great record and I stick with him. 

chiang_mai said:

If you're looking for a lower risk corporate bond fund, this one might appeal:

https://global.morningstar.com/en-eu/investments/funds/0P0001O290/portfolio

It's investment grade and has returned 7% YTD, MS risk of 27, 98% BBB+, SD under 5 and duration of 4.45. Plus there's over 600 bonds in the fund which gives it some breathing room in case some fail, olus, it's very cheap.

It's maybe worth mentioning that corporate bond index funds typically hold about 50% A grade (a few of those will be AA) and 50% BBB. An actively managed 'investment grade' bond fund is typically focused on BBB to get higher returns and might have up to 20% in junk territory. Very different beasts that people should be aware of.