New year portfolio tidy-up

Alexland

ivormonee said:

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.

Baron Rothschild — 'The time to buy is when there's blood in the streets, even if the blood is your own.'

IMHO ILGs are attractively priced now and although we might still get price volatility from political events the underlying fundamentals should play out nicely.

masonic

ivormonee said:

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!

This is where understanding your investments can help. Back in late 2021, this ETF would have had a YTM of around RPI-2.2% and a duration of around 18 years against a typical coupon of +0.5%. The typical underlying ILG at that time with a face value of £100 would have been priced at £140 to £400 (overvalued between 40-300%), meaning you were locking in a capital loss of around 50% (roughly 18 x (2.2+0.5) ) from the existing holdings, which could be spread over many years if interest rates stayed near zero, or happen in a short space of time if interest rates were to rise. This is a mathematical fact of the cashflows.

We know now that interest rates did rise, and so all of that loss has now been realised in a short space of time. However, had that not happened, the loss would simply have been more spread out. It was always coming.

The ETF's characteristics today are a YTM of RPI+1.7% and a duration of around 14 years. The typical underlying ILG is now trading with a price between £50-£100, meaning you would now be locking in a capital gain of around 20% from the existing holdings. That is not to say prices couldn't go down more in the short term if interest rate expectations rose even further, but unlike the 2022 scenario, this would be a temporary effect, which would be balanced by a corresponding gain as the underlying ILG pulled to par in the years leading up to their maturity.

Bostonerimus1

ivormonee said:

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!

IMO you are over thinking things. 

ivormonee

@masonic I don't understand bonds so I really appreciate your comments which I have found really helpful.

Thank you.