New year portfolio tidy-up

ivormonee

My etf portfolio has got pretty unbalanced as I've not been keeping an eye on it this year. I will need to rebalance soon. I am also thinking of taking the opprtunity to potentially do a bit of tidying up, particularly the bond part.

I currently hold these bond etfs with these corresponding target allocations (which have now deviated from these percentages over the past year): 
AGBP 12%, XGSG 3%,  GILI 3%, SLXX 3%, IS15 8%, GHYS 3%, SBEG 3% (total 35%). 

Summary:
AGBP - global aggregate DM + EM
XGSG - global govt. DM
SBEG - global govt. EM
GILI - UK govt.
SLXX - UK Corporate
IS15 - UK Corporate
GHYS - global HY DM

Some observations. AGBP has 10% China, whereas a corresponding VAGS (not in my portfolio) has approx. 1% China, and both have about 5% EM (excl. China). The China allocation seems to be the main difference in geography between these two.

SBEG is all EM (but govt. only, no corporate, unlike AGBP and VAGS which are aggregate). 

I was worried that AGBP and SBEG have too much overlap, but only 5% of AGBP (the non-China EM part) is included in SBEG, so maybe it's ok? SBEG has no China holdings at all.

I am wondering if I might be able to simplify and consolidate these in some way, without compromising the diversification. I am struggling to see a good way to do this, so would appreciate helpful suggestions! 
Thanks!

ColdIron

I would question the purpose of any fund that is less than 5% of the portfolio

It feels like a shotgun approach and when rebalancing the trading fees could wipe out whatever perceived advantage existed in the first place, perhaps one of the reasons you are reviewing it

Alexland

ivormonee said:

I am wondering if I might be able to simplify and consolidate these in some way, without compromising the diversification. I am struggling to see a good way to do this, so would appreciate helpful suggestions! 

That's quite a collection of ETFs to cover the various parts of the global bond market and I'd question if so much diversification is needed given some of them are very safe anyway and this is only 1/3 of your portfolio. Maybe you could own less varieties if you trimmed it down to just the safer ones that will offer the least corelation to the rest of your portfolio (assuming it's mostly equities). I'm not a fan of conventional bonds, holding bond funds (although I have some INXG but my options on Fidelity are limited) or taking currency risk as I like to be sure the bonds I own directly will beat inflation in my own country if held to redemption.

I think it comes down to if you want a broad spectrum of risk across your bonds so that the higher risk ones have almost equity like properties so your overall portfolio has a broad spectrum of risk. Of if you want the yin/yang of very different safe bond and risky equity forces fighting it out to see which wins each year and then rebalancing them.

Bostonerimus1

ColdIron said:

I would question the purpose of any fund that is less than 5% of the portfolio

It feels like a shotgun approach and when rebalancing the trading fees could wipe out whatever perceived advantage existed in the first place, perhaps one of the reasons you are reviewing it

I'd go even further and question funds that are less than 10% or even 20% of a portfolio.

Eyeful

1. Do you really need 7 different bond etf's with such low % amounts in them.
 
2. It must be hard to track whats going on inside each one individually.

3. Have you thought of making your life easier by using
(a) Multi- Asset Fund, with a share/bond risk split you are happy with.
This will provide you with a ready made portfolio and they would do the rebalancing for you.
(b) Using a 3 branch "Lazy man" portfolio aimed at the UK market

OldScientist

AGBP is already very well diversified (including government and corporate) and pretty well everything else you hold will be included (although with a different weights). Holding XGSG and SBEG in addition seems like unnecessary complexity to me. 

I note that IS15 and SLXX also overlap at short maturities.

I note that GILI holds the complete market of inflation linked gilts and has a relatively long duration (13-14 years) so will be sensitive to changes in yields.

masonic

I think the key question is...

What do you want this bond portfolio to achieve? (in terms of objectives, composition, risk management)

ivormonee

Thanks to everyone who has commented so far.

I set my minimum holding size at 3% by looking at some model portfolios a few years ago and just stuck with it.

AGBP is well diversified. All of SBEG overlaps with 5% of it. I haven't checked XGSG but would expect that this might overlap maybe 30% - 40% of it. Switching the XGSG 3% into AGBP wouldn't make as much difference as switching SBEG. So I could think about that.

I had wanted something balanced, close to 60/40, to maintain something diversified, in order to achieve reasonable risk-adjusted returns. The bonds were a diversifier for the equity ETFs as a way of reducing risk overall. My allocation to bonds was 35%.

Within the bond contingent I wanted to also be diversified for the same reason, in the same way that I diversify my equity exposure into large cap/mid cap, developed/ emerging, US/UK, etc. Returns from different bond ETFs have been widely different, in the same way that different equity ETFs have been. Eg. in 2025, GILI 1.6%, AGBP 4.8%, GHYS 7.5%, SBEG 14.9%. By diversifying, I reduce risk.

So, bonds provide some balance to equities (as long as they are generally not strongly correlated), and they themselves are diversified to further reduce risk.

Eyeful

As you mentioned a 60/ 40 split, the following may be of interest to you:
Read this:  https://monevator.com/passive-fund-of-funds-the-rivals/   

masonic

ivormonee said:

Thanks to everyone who has commented so far.

I set my minimum holding size at 3% by looking at some model portfolios a few years ago and just stuck with it.

AGBP is well diversified. All of SBEG overlaps with 5% of it. I haven't checked XGSG but would expect that this might overlap maybe 30% - 40% of it. Switching the XGSG 3% into AGBP wouldn't make as much difference as switching SBEG. So I could think about that.

I had wanted something balanced, close to 60/40, to maintain something diversified, in order to achieve reasonable risk-adjusted returns. The bonds were a diversifier for the equity ETFs as a way of reducing risk overall. My allocation to bonds was 35%.

Within the bond contingent I wanted to also be diversified for the same reason, in the same way that I diversify my equity exposure into large cap/mid cap, developed/ emerging, US/UK, etc. Returns from different bond ETFs have been widely different, in the same way that different equity ETFs have been. Eg. in 2025, GILI 1.6%, AGBP 4.8%, GHYS 7.5%, SBEG 14.9%. By diversifying, I reduce risk.

As you say, AGBP is well diversified with almost 20,000 holdings, since it tracks an index of developed and emerging investable markets, both government and corporate. If your purpose for the other funds is further diversification, then some of the other holdings you have achieve that, while others arguably do not.

• XGSG tracks the FTSE World Government Bond - Developed Markets (GBP Hedged) index, which more or less a subset of the Bloomberg Global Aggregate Bond (GBP Hedged) index tracked by AGBP
• SBEG is a strange one, as it tracks the Bloomberg Emerging Markets USD Sovereign & Agency 3% Country Capped (GBP Hedged) index, which is an index of EM bonds that are issued in USD rather than a local currency. You remarked earlier that it has no China holdings, and this is why. This perhaps covers some minor EM issuers that AGBP does not include.
• GILI is actually a completely separate sector as it is an index linked gilt index fund (were you aware of this - you labelled just "UK govt."?) Inflation protection is sadly absent from the bond component of so many mixed asset portfolios, but be aware that the duration of this fund is 15+ years, so it may not behave as one might anticipate - look what happened to it when inflation spiked a couple of years ago. So this adds new underlying bonds to your portfolio.
• SLXX tracks large cap corporate bonds issued in GBP (tracking iBoxx GBP Liquid Corporates Large Cap index), so is a subset of AGBP.
• IS15 iBoxx GBP Corporates 0-5 index tracks short dated corporate bonds issued in GBP (tracking iBoxx GBP Corporates 0-5 index). Mostly it is a subset of SLXX, but it includes some smaller bond issuers as well.
• GHYS tracks global junk bonds. It covers credit ratings BB, B and CCC, whereas AGBP covers AAA, AA, A and BBB. So this is complementary to AGBP.

If you wanted to cast your net as widely as possible, you could retain AGBP (almost 20,000 holdings), GHYS (+1,704 holdings), GILI (+35 holdings, but index linked - assuming you want that). This gives you nominal+index linked, government+corporate, credit ratings from AAA to CCC, short/medium/long duration, developed+emerging markets.

Unless you have a reason to dislike AGBP's weighting towards corporate bonds vs government, then tilting more in favour of government bonds using XGSG+SBEG seems to lack a rationale, so those two could probably be left out. Unless you have a reason to dislike AGBP's allocation towards sterling corporate bonds, the same argument applies to SLXX.

Does IS15 serve any specific purpose, such as wanting something ultra-low volatility for near term cash requirements? If so, that could be a reason for keeping it. If not, through the lens of diversification, it probably adds another couple hundred small cap sterling corporate bonds to a portfolio of 21,000 and reduces overall duration. Why focus on only the short dated small cap sterling corporates?

So to me, this looks like it could be a 3 fund portfolio (perhaps adding a fourth as a cash proxy), where those differences in performance you've observed could play out under the covers of the fund wrappers.

ivormonee

Thank you all for the additional detailed comments. 

Masonic, that's really insightful, thank you, and helps me to reframe my thinking along the following lines. AGBP covers pretty much everything investment grade globally: govt. and corporate, DM and EM, market-cap (or rather, debt-issuance) based. XGSG in consumed within probably almost half of AGBP. SLXX, IS15, SBEG (and XGSG) essentially re-weight the portfolio bond component, and GHYS and GILI add something new. 

Whilst GHYS is a bond diversifier, it does not diversify adequately away from equities to offer downside protection when needed. It, and to some degree SBEG, fall almost in line with equities when they drop significantly (or, have done in the past). The trade off is GHYS can provide better long term returns than inv. grade options. So it's a tricky choice and I suppose a personal one. And SBEG has been stellar in 2025. But, past performance and all that ...

GILI has been a nightmare. Notably, -33.6% in 2022, and 5yr ann. of -6.66%*. It's been sucking the life out of my portfolio (one good thing I suppose is that it was confined to just 3% of it). A few years ago I would never have anticipated a bond fund to have the capacity for such hefty losses. IS15 is the one that helps me sleep at night, so that I feel is staying where it is!

I'll give it all some more thought over the coming days.

Thanks again.

*-6.66% truly was the number of the GILI beast!