Octopus Choice
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I maintain the view that holding individual bonds to maturity eliminates the risk that you will lose money due to interest rate rises or other causes of price fluctuation on the market.
OK. i suppose what i'm saying is that it isn't holding individual bonds (rather than bond funds) that eliminates the risk, it's holding on to maturity (whether of an individual bond or of a bond fund) that eliminates it.
well, you can avoid the risk of the bond fund trading bonds by making it a bond tracker fund. if you pick an active bond fund, presumably that's because you think that the manager's trading will overall add rather than detract from value. i'm not totally against active bond funds, but in a sense they add in another kind of risk: manager risk.Coming back to your point that holding a bond fund for a sufficiently long period would achieve the same end, this is true providing the bond fund did not trade the bonds it held. In practice there is often a flight to the safety of lower risk bonds which crystallises losses. Nonetheless, there might be examples of funds in which this is true. It's little consolation though if you want to access the money in a specific timescale, when buying individual bonds would give a defined return on a set date, notwithstanding default risk.0 -
Agreed. Although the benefit with a ladder of individual bonds is that you get a return of capital at par even during times when prices are low.short_butt_sweet wrote: »OK. i suppose what i'm saying is that it isn't holding individual bonds (rather than bond funds) that eliminates the risk, it's holding on to maturity (whether of an individual bond or of a bond fund) that eliminates it.
You mentioned specifically a high-yield bond fund when you introduced bonds to this discussion. To me that pretty much necessitates an active fund, but perhaps index trackers or ETFs now exist in this space (edit: on checking Trustnet, there are 32 high yield bond funds, none of which are trackers AFAICT; but one option in an ETF: BMO Barclays Global High Yield Bond GBP Hedged).well, you can avoid the risk of the bond fund trading bonds by making it a bond tracker fund. if you pick an active bond fund, presumably that's because you think that the manager's trading will overall add rather than detract from value. i'm not totally against active bond funds, but in a sense they add in another kind of risk: manager risk.0 -
short_butt_sweet wrote: »well, you can avoid the risk of the bond fund trading bonds by making it a bond tracker fund.
Will the same bond always make up the same proportion of the index all the way to its maturity though? Would the tracker fund "trade" the bond when the index weights are recalculated?0 -
Taking the only example of a passive high yield bond fund I could find (the ETF above, ZYHG), the KIID states: "The objective of this Exchange Traded Fund is to provide an exposure to global fixed-rate high yield bonds that have a maturity greater than one year and a minimum issue size of US$500m (or its equivalent in other currencies) which are hedged to sterling". So presumably it is rolling into longer dated bonds prior to maturity. Perhaps other passive bond funds also do this? I know some passive bond funds are long-dated and therefore wouldn't hold to maturity. I wasn't really able to glean any useful information about how the index was made up and what sort of portfolio turnover could be expected by constituents entering and leaving the index, or by their weights being recalculated. I did only skim-read the prospectus though.londoninvestor wrote: »Will the same bond always make up the same proportion of the index all the way to its maturity though? Would the tracker fund "trade" the bond when the index weights are recalculated?0 -
You mentioned specifically a high-yield bond fund when you introduced bonds to this discussion. To me that pretty much necessitates an active fund, but perhaps index trackers or ETFs now exist in this space (edit: on checking Trustnet, there are 32 high yield bond funds, none of which are trackers AFAICT; but one option in an ETF: BMO Barclays Global High Yield Bond GBP Hedged).
there are a few ETFs. another is: ishares global corp bond GBP hedged ETF (GHYS).londoninvestor wrote: »Will the same bond always make up the same proportion of the index all the way to its maturity though? Would the tracker fund "trade" the bond when the index weights are recalculated?
it's true index weights can be adjusted, mainly due to bonds being added to or removed from the index. which could lead to a small amount of "trading".
however, that would generally involve adjusting the size of a holding, not changing it completely, so it's a smaller effect.Taking the only example of a passive high yield bond fund I could find (the ETF above, ZYHG), the KIID states: "The objective of this Exchange Traded Fund is to provide an exposure to global fixed-rate high yield bonds that have a maturity greater than one year and a minimum issue size of US$500m (or its equivalent in other currencies) which are hedged to sterling". So presumably it is rolling into longer dated bonds prior to maturity. Perhaps other passive bond funds also do this?
a number of bond trackers do hold bonds until they have 1 year to go, instead of actually to maturity. but IMHO that comes to almost the same thing. the price of a bond with 1 year to go is not exactly known, but it tends to be near to par value by then.0 -
That looks like a more reasonable option than the one I found, thanks. Looks as though the index is constructed so as to minimise trading.short_butt_sweet wrote: »there are a few ETFs. another is: ishares global corp bond GBP hedged ETF (GHYS).0 -
And I’m astonished at your response, especially as I also agree with everything FA says.Absolutely, and I'm rather astonished at aroominyork in post 9.
You should never puts all your eggs in one basket, regardless of invesment or asset class.
I'm still surprised a professional IFA seems to be suggesting this, which is the point that is being lost if someone pulls out the 'it isn't for you' line, pulling that nonsense is so unhelpful on a discussion forum.
Where did I advocate putting all your eggs in one basket? My point was this: if you want to put £20k into p2p and are going to spread across ten (or maybe even five) platforms that suggests a fundamental lack of confidence in the model and hence it might be best to avoid p2p altogether. As I said in a subsequent post, I have c.8% of my investments in p2p spread across three platforms – that seems a reasonable approach to managing the risk of p2p.
Let me give an analogy. If you invest in active equity funds, you diversify across different regions/sectors/market caps etc. If you aim for exhaustive diversification you are essentially compiling a tracker but paying active management fees. So you would be better off not investing in active funds but just buying a low cost tracker. Similar with p2p – if you are trying to manage out all the risk, is it an asset type which is appropriate for you in the first place?0 -
Get a new IFA, you are right to be concerned.
Octopus Choice is fine, but its terrible advice for you to be told to just use only 1 P2P company for a lump sump.
Have a look at the big P2P thread
If you want to diversify across multiple P2P platforms with minimal effort you should look at Orca (https://www.orcamoney.com). They will split your investment across Assetz Capital, Landbay, Lending Crowd, Lending Works, Octopus Choice, and RateSetter. They target a return of 5%.0 -
Clever idea. Someone always comes up with a new way to take a cut, in this case 0.65%.If you want to diversify across multiple P2P platforms with minimal effort you should look at Orca (https://www.orcamoney.com). They will split your investment across Assetz Capital, Landbay, Lending Crowd, Lending Works, Octopus Choice, and RateSetter. They target a return of 5%.0 -
If memory serves the number of platforms used depends on the amount investedIf you want to diversify across multiple P2P platforms with minimal effort you should look at Orca (https://www.orcamoney.com). They will split your investment across Assetz Capital, Landbay, Lending Crowd, Lending Works, Octopus Choice, and RateSetter. They target a return of 5%.0
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