Bonds or WP Funds?

Will a Global Bond fund such as the Vanguard one hold up as well as an active WP fund or Strategic Bond Fund in a market downturn?

As with all investments no one can give you an answer to that question with any degree of certainty.
There have been a few threads on the forum debating if bonds will play the same stabilising role in future that they traditionally have done.
The argument is that they are overpriced and in any market downturn they could follow equities down.
Others do not agree and to some extent it depends on what sort of bonds are being talked about.
Some increased diversification into WP IT's ; Gold; property etc and decreasing bond % to some extent is probably a sensible middle view .

Sue58 wrote: »

I am looking at a 70/30 Equity/Bond allocation so if I went down the WP fund route I suppose I would have to increase the holding to 50/50 after taking into account the equities held with the WP fund? Will a Global Bond fund such as the Vanguard one hold up as well as an active WP fund or Strategic Bond Fund in a market downturn?

Whilst I understand the logic of reducing your equities holding from 70:30 to 50:50 if holding a Wealth Preservation IT (which also holds some equities) in place of bonds, I think you also need to consider why you are holding a WP IT in the first place. Presumably you are choosing the WP IT as a replacement to bonds because you want diversification in your portfolio and to reduce volatility in the event of an equity market crash. If you believe a WP IT will achieve that goal better than bonds, because you think bonds are currently overpriced and unlikely to offer an effective reduction in portfolio volatility then maybe you should stick with your original 70:30 split. Presumably the 70% equity allocation is well diversified in global equities and is there for the growth element of your portfolio so it may not make sense to substantially reduce the amount if you still want to meet your original investment growth goals as you are unlikely to see significant growth from a WP IT.

SonOf wrote: »

What are you trying to achieve?

The key question!


For any fund that someone's thinking of holding in order to perform a certain role they should really look through to the fund's underlying assets. How that fund performs in a given future scenario is determined by its asset allocation rather than by any aspirational label that investors or others might apply to the fund.

So for example, if there was to be an deflationary growth scare, a fund consisting of long duration high quality government bonds might perform well whereas a fund comprising equities, shorter duration index linked govvies and precious metals would not perform so well, even though that second fund might be expected to perform better (ie. not fall as much) as a third fund comprising all equities.

In contrast, in the face of unexpected inflation, the high quality longer duration conventional gov bond (first) fund above wouldn't fare so well and might fall significantly, whereas the second example fund above comprising equites, shorter duration linkers/TIPS and PMs could perform best, and better than an all equity fund, the latter which might fall more or fall less than the first (long duration) bond fund, depending.

And so on.

Figure out roughly what it is you're hoping to achieve and assemble a portfolio that has a shot at achieving it. If that portfolio includes some multi-asset funds, take a look at their underlying holdings so you've an idea of your overall asset allocation and therefore how that portfolio might respond to different economic scenarios, particularly major unexpected bumps in the road.

If that sounds too complex or unappealing then consider farming out the whole portfolio construction task to someone else by using a reputable multi-asset fund that's intended as an all-in-one portfolio and which your investigation and research suggests might be appropriate to your goals. If you do that, I'd still suggest taking a look at the fund's underlying asset allocation, rather than treating it as a black box, so you've an idea (be mentally prepared) for what might happen in a bunch of different future scenarios.

I thought it was Linton that had a mix of SB and WP funds in his WP portfolio. It’s obviously a personal choice but IMO not a bad way to go but you could just as easily settle for your preferred WP fund or IT. So at the end of the day it’s not a bad choice to go 50/50.