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What's the point of bond funds?
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NPH
Posted: 15 February 2025 09:46:21(UTC)
#16

Joined: 26/01/2014(UTC)
Posts: 59
Harry Gloom;334489 wrote:
MarkSp;334488 wrote:
Team

You are all writing as though bonds are some sort of homogenous asset - they aren't

The chjaracteristics of IL, traditional, low coupon gilts (CGT benefits), market coupon gilts, HYBs, complex credit, foreign currency, active, passive................

At the moment there are plenty of decent lowish duration HYB funds compounding away at 2-2.5% a quarter. and that is worth thinking about.



Aren't high yield bond funds typically lower rated riskier corporate bonds? They will be volatile and crashy in market turmoil and not offer the safety of cash so why not just hold that money in more equities if you want to put it “risk on”?

Can you give a few examples please? I'd like to take a closer look in case I've missed something.


Ditto!
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Anthony French
Posted: 15 February 2025 09:48:58(UTC)
#52

Joined: 09/09/2018(UTC)
Posts: 9,127


If u think u can buy and forget, u may be disappointed but as always it's about timing and then time in.
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Peanuts
Posted: 15 February 2025 09:53:53(UTC)
#18

Joined: 16/02/2019(UTC)
Posts: 1,476

Thanks: 2446 times
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Busy doing nothing;334496 wrote:


In 2024 i bought VGOV for my SIPP to provide monthly income but also at the time expected to see interest rates to start dropping which would have meant that that bond prices should increase, this did not happen. So not including the monthly coupon payments i am currently down around -5%.
At the same time i also bought BIPS for my ISA, this has not really gone up or down but has provided a higher than average yield.
Make of that what you will.


Falling interest rates and yields was always going to be a volatile ride. I also was underwater at one point with VGOV. There is a trade off to higher interest rates for longer and that is higher returns for longer.
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2 users thanked Peanuts for this post.
ANDREW FOSTER on 15/02/2025(UTC), Busy doing nothing on 15/02/2025(UTC)
NPH
Posted: 15 February 2025 10:05:51(UTC)
#19

Joined: 26/01/2014(UTC)
Posts: 59
Peanuts;334503 wrote:
Busy doing nothing;334496 wrote:


In 2024 i bought VGOV for my SIPP to provide monthly income but also at the time expected to see interest rates to start dropping which would have meant that that bond prices should increase, this did not happen. So not including the monthly coupon payments i am currently down around -5%.
At the same time i also bought BIPS for my ISA, this has not really gone up or down but has provided a higher than average yield.
Make of that what you will.


Falling interest rates and yields was always going to be a volatile ride. I also was underwater at one point with VGOV. There is a trade off to higher interest rates for longer and that is higher returns for longer.


I putt20% of my retirement pot into the L&G index-linked gilt fund as the "it won't do much but at least it's safe" part of my portfolio, only to watch in horror as it dropped 30% in 2022. This has undoubtedly coloured my attitude.
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5 users thanked NPH for this post.
Sheerman on 15/02/2025(UTC), Harry Gloom on 15/02/2025(UTC), Busy doing nothing on 15/02/2025(UTC), Phil 2 on 16/02/2025(UTC), The Spanish Inquisition on 18/02/2025(UTC)
Peanuts
Posted: 15 February 2025 10:47:57(UTC)
#29

Joined: 16/02/2019(UTC)
Posts: 1,476

Thanks: 2446 times
Was thanked: 2393 time(s) in 919 post(s)
NPH;334504 wrote:
Peanuts;334503 wrote:
Busy doing nothing;334496 wrote:


In 2024 i bought VGOV for my SIPP to provide monthly income but also at the time expected to see interest rates to start dropping which would have meant that that bond prices should increase, this did not happen. So not including the monthly coupon payments i am currently down around -5%.
At the same time i also bought BIPS for my ISA, this has not really gone up or down but has provided a higher than average yield.
Make of that what you will.


Falling interest rates and yields was always going to be a volatile ride. I also was underwater at one point with VGOV. There is a trade off to higher interest rates for longer and that is higher returns for longer.


I putt20% of my retirement pot into the L&G index-linked gilt fund as the "it won't do much but at least it's safe" part of my portfolio, only to watch in horror as it dropped 30% in 2022. This has undoubtedly coloured my attitude.



Respectfully you are making a typical schoolboy error of looking in the rear view mirror and also not understanding bonds, interest rates, and the current direction of the economic environment
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Tug Boat
Posted: 15 February 2025 10:59:02(UTC)
#53

Joined: 16/12/2014(UTC)
Posts: 2,015
Held RL extra yield bond thru 2022 it lost 16%. It recovered and is now down 6%. It kicks out 7% a year.

The one I’d recommend is CVCG. I don’t understand it, but I do know a bit about CVC. That’s why I bought it.
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SF100
Posted: 15 February 2025 11:04:45(UTC)
#20

Joined: 08/02/2020(UTC)
Posts: 2,254
NPH;334504 wrote:
I putt20% of my retirement pot into the L&G index-linked gilt fund as the "it won't do much but at least it's safe" part of my portfolio, only to watch in horror as it dropped 30% in 2022. This has undoubtedly coloured my attitude.


I sympathise with your experience.

But who's to say that the opposite will not happen in the future?
The problem is that we all run out of 'future' - and that's one of the key considerations with choosing your bond exposure.

From your opening post on this thread, it does not come across that you now understand, in reasonable technical/financial detail, the reasons why that horror unfolded.

Honestly, I would recommend avoiding bond funds until you are comfortable with their workings.
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DIY Investing
Posted: 15 February 2025 11:08:51(UTC)
#36

Joined: 29/09/2018(UTC)
Posts: 3,827

Thanks: 2322 times
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Peanuts;334511 wrote:
NPH;334504 wrote:
Peanuts;334503 wrote:
Busy doing nothing;334496 wrote:


In 2024 i bought VGOV for my SIPP to provide monthly income but also at the time expected to see interest rates to start dropping which would have meant that that bond prices should increase, this did not happen. So not including the monthly coupon payments i am currently down around -5%.
At the same time i also bought BIPS for my ISA, this has not really gone up or down but has provided a higher than average yield.
Make of that what you will.


Falling interest rates and yields was always going to be a volatile ride. I also was underwater at one point with VGOV. There is a trade off to higher interest rates for longer and that is higher returns for longer.


I putt20% of my retirement pot into the L&G index-linked gilt fund as the "it won't do much but at least it's safe" part of my portfolio, only to watch in horror as it dropped 30% in 2022. This has undoubtedly coloured my attitude.



Respectfully you are making a typical schoolboy error of looking in the rear view mirror and also not understanding bonds, interest rates, and the current direction of the economic environment


Do any of us know the direction of the economic environment? Are interest rates really that high? And will yields really fall much?

Interest rates are still low, they just aren’t zero any longer, and there isn’t much road left to run for bonds even if interest rates do fall from here. Bonds have simply gone from offering return free risk to offering very slim returns in exchange for still quite some considerable risk.
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2 users thanked DIY Investing for this post.
NPH on 15/02/2025(UTC), SF100 on 15/02/2025(UTC)
NPH
Posted: 15 February 2025 11:27:31(UTC)
#35

Joined: 26/01/2014(UTC)
Posts: 59
Peanuts;334511 wrote:
NPH;334504 wrote:
Peanuts;334503 wrote:
Busy doing nothing;334496 wrote:


In 2024 i bought VGOV for my SIPP to provide monthly income but also at the time expected to see interest rates to start dropping which would have meant that that bond prices should increase, this did not happen. So not including the monthly coupon payments i am currently down around -5%.
At the same time i also bought BIPS for my ISA, this has not really gone up or down but has provided a higher than average yield.
Make of that what you will.


Falling interest rates and yields was always going to be a volatile ride. I also was underwater at one point with VGOV. There is a trade off to higher interest rates for longer and that is higher returns for longer.


I putt20% of my retirement pot into the L&G index-linked gilt fund as the "it won't do much but at least it's safe" part of my portfolio, only to watch in horror as it dropped 30% in 2022. This has undoubtedly coloured my attitude.



Respectfully you are making a typical schoolboy error of looking in the rear view mirror and also not understanding bonds, interest rates, and the current direction of the economic environment


So what would you hold for 4-10 yers, to avoid any such 'schoolboy' error?
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2 users thanked NPH for this post.
Rookie Investor on 15/02/2025(UTC), The Spanish Inquisition on 18/02/2025(UTC)
NPH
Posted: 15 February 2025 11:32:41(UTC)
#21

Joined: 26/01/2014(UTC)
Posts: 59
SF100;334514 wrote:
NPH;334504 wrote:
I putt20% of my retirement pot into the L&G index-linked gilt fund as the "it won't do much but at least it's safe" part of my portfolio, only to watch in horror as it dropped 30% in 2022. This has undoubtedly coloured my attitude.


I sympathise with your experience.

But who's to say that the opposite will not happen in the future?
The problem is that we all run out of 'future' - and that's one of the key considerations with choosing your bond exposure.

From your opening post on this thread, it does not come across that you now understand, in reasonable technical/financial detail, the reasons why that horror unfolded.

Honestly, I would recommend avoiding bond funds until you are comfortable with their workings.


Hence why I'm asking the question, as they seem to offer very little downside protection and much lower returns.
Perhaps your detailed technical/financial understanding could offer some guidance?
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