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Cash in on guilt(s) ... (Telegraph)

Gilts, bonds, and interest-bearing shares
yorkshirelad1
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Cash in on guilt(s) ... (Telegraph)

#625453

Postby yorkshirelad1 » November 4th, 2023, 9:07 pm

Telegraph: Sat 4 Nov 2023: Money: Smart investors are exploiting bond market chaos - so can you

https://www.telegraph.co.uk/money/investing/investors-exploit-savings-bond-market-chaos-cash-in-gilts/ (paywalled)
http://archive.today/2023.10.30-120407/https://www.telegraph.co.uk/money/investing/investors-exploit-savings-bond-market-chaos-cash-in-gilts/ (non paywalled)
(typo in print edition not apparently in online version)

Image

Oh dear, someone didn't quite check the spell checker .... :-)

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Re: Cash in on guilt(s) ... (Telegraph)

#625484

Postby JohnW » November 4th, 2023, 11:38 pm

Guilty as charged.

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Re: Cash in on guilt(s) ... (Telegraph)

#625558

Postby 88V8 » November 5th, 2023, 12:59 pm

yorkshirelad1 wrote:Telegraph: Sat 4 Nov 2023: Money: Smart investors are exploiting bond market chaos - so can you

At least it's not the Daily Mail. By the time the DM starts recommending something, it's time to get out :)

V8

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Re: Cash in on guilt(s) ... (Telegraph)

#625572

Postby richfool » November 5th, 2023, 2:20 pm

For someone who doesn't have much knowledge about Gilts and Bonds, is it worthwhile using a bond tracker or two?

E.g. a combination of a global bond tracker like: VAGP; a corporate bond tracker like IHHG; and a Gilts ETF such as: VGOV, IGLT or GIL5?

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Re: Cash in on guilt(s) ... (Telegraph)

#625575

Postby Lootman » November 5th, 2023, 2:30 pm

richfool wrote:For someone who doesn't have much knowledge about Gilts and Bonds, is it worthwhile using a bond tracker or two?

E.g. a combination of a global bond tracker like: VAGP; a corporate bond tracker like IHHG; and a Gilts ETF such as: VGOV, IGLT or GIL5?

At least for gilts, no. There is no CGT on profits on individual gilts but there is CGT on profits on gilt funds.

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Re: Cash in on guilt(s) ... (Telegraph)

#625579

Postby richfool » November 5th, 2023, 2:49 pm

Lootman wrote:
richfool wrote:For someone who doesn't have much knowledge about Gilts and Bonds, is it worthwhile using a bond tracker or two?

E.g. a combination of a global bond tracker like: VAGP; a corporate bond tracker like IHHG; and a Gilts ETF such as: VGOV, IGLT or GIL5?

At least for gilts, no. There is no CGT on profits on individual gilts but there is CGT on profits on gilt funds.

I should have added, the above would all be held within an ISA, (assuming all are eligible to held in an ISA).

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Re: Cash in on guilt(s) ... (Telegraph)

#625596

Postby thebarns » November 5th, 2023, 4:05 pm

Richfool,

I considered buying bond or gilt funds in Autumn 2022 when certain gilt and index linked funds wobbled severely.

I had a little knowledge of such funds and their individual constituents around then.

I then researched for a while.

And rather than buy funds, I then bought a series of different gilts over the next year, all maturing at different dates, initially buying fairly short duration gilts, around 1-4 years and then in the last 2/3 months moving also buying to 8-15 year gilts.

I opted to do this rather than invest in funds of similar holdings.

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Re: Cash in on guilt(s) ... (Telegraph)

#625621

Postby richfool » November 5th, 2023, 6:48 pm

thebarns wrote:Richfool,

I considered buying bond or gilt funds in Autumn 2022 when certain gilt and index linked funds wobbled severely.

I had a little knowledge of such funds and their individual constituents around then.

I then researched for a while.

And rather than buy funds, I then bought a series of different gilts over the next year, all maturing at different dates, initially buying fairly short duration gilts, around 1-4 years and then in the last 2/3 months moving also buying to 8-15 year gilts.

I opted to do this rather than invest in funds of similar holdings.

Thanks for your thoughts, TheBarns. TBH that's what I'm trying to avoid doing. I was hoping I could just pick a fund or ETF, or two, and in effect delegate the research and trading to the relevant fund manager. Hence the examples/suggestions in my earlier post.

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Re: Cash in on guilt(s) ... (Telegraph)

#625652

Postby thebarns » November 5th, 2023, 9:12 pm

Richfool,

I know I can’t give advice etc etc.

So I can only describe my own thought process behind purchasing these, which is a very simplistic take on matters.

Up until interest rates started increasing in 2022, gilts, for me, had offered a poor income return for someone who was looking for income in retirement from a majority though not all of a portfolio, ever since I’d been retired in 2018 and also for a number of years before that - at one point I’d been about to actively short U.K. gilts but the particular etf I was going to use was withdrawn. I might have made a fortune from that process, although I had been looking to short them for a good while before they plummeted so my patience would have been severely tested, as well as my losses on the withdrawn etf !

However from 2022 and particularly Autumn 2022 to date, their whole appeal has completely changed.

I was able to buy at different times, locked in guaranteed rates of annual returns (whether income or capital uplift) of 4-5.5% over the purchases of the last year, something which had not existed for many years.

I view the return as guaranteed and 99.9% safe as I am prepared to wait till maturity on all of them, though I might sell some of them if interest rates really fell significantly and capital values therefore increased (as some purchases have already done to modest extents). They are very easy to deal on the platforms I use, being large mainstream providers. Simple to understand and calculate returns. The risk of default is virtually nil (if HM Govt did default, I suspect we’d be facing existential circumstances anyway).

Having read a bit about it, for the plain vanilla gilts (not the index linked ones), there really is no great science nor difference between which one you actually pick - I have a variety of different maturing years and coupon rates, all held within a SIPP or ISA, so the capital gains or income uplifts are mostly irrelevant, it’s all total return in my case. The yields for those maturing within months or a very short number of years of one another are virtually identical, safe for small differences that make no difference to me - the differences become more significant the longer the maturity dates, but as I have said, all of mine have been bought locking in broadly similar rates of annual return within 1% of each other and I am prepared to wait till maturity on any further price drops which can happen on longer dated gilts. I have some very low coupon rates but more of the higher coupon ones (though the overall returns will be broadly the same) as the higher coupon ones will produce an annual income, as opposed to the capital uplift of the low coupon ones, and I will use the income to fund cash withdrawals from the sipp/Isa on an annual basis for living expenses etc.

So I do find the process quite simple and prefer dealing the individual gilts myself, as those close to one another in date maturities all broadly move together, knowing the exact total and annual income returns have generated if I am prepared to hold to maturity. A gilt fund loses you something on charges and also it will buy and sell individual gilts as it sees fit, and will yield lower on annual income payouts than I can generate doing it this way.

I hope you find the thought process useful.

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Re: Cash in on guilt(s) ... (Telegraph)

#625671

Postby richfool » November 5th, 2023, 10:39 pm

Hi TheBarns, thank you for sharing your thoughts.

My only involvement with bonds, to date, has been to buy into NCYF (New City High Yield Fund) late last year, (in the aftermath of the Liz Truss/Kwasi Kwarteng budget); the SP of that lost a little ground in the early part of this year, but now seems to be stabilising, as the market thinks interest rates have peaked. That holding is providing me with a dividend yield of some 9.3%.

Then over the last couple of weeks, I have, (almost as an experiment), taken small positions in VAGP (Vanguard Global Aggregate ETF GB Dist) and IHHG (i-shares USD High Yield Corporate Bond GB Hedged Distrib. The former to give my mainly equity focused portfolio of IT's some broad bond exposure and diversity; and the latter (IHHG) to enhance income. This is based on my thinking that interest rates have peaked, though are likely to be slow to fall back, and a recession is quite possible later in 2024. I am also trialing these, particularly VAGP, for possible inclusion in my wife's portfolio.

I am aware that IT's such as SAIN and MYI, which I hold, do have some bond exposure too.

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Re: Cash in on guilt(s) ... (Telegraph)

#625694

Postby thebarns » November 5th, 2023, 11:56 pm

Richfool,

I also have a position in NCYF and BIPS and SMIF, similar investment trusts These will yield more than individual gilts and will be more volatile and will largely move in the opposite direction of interest rates, so should perform well if your view on the trend of interest rates proves prescient.

I’ve looked at VAGP a few times and it has a defensive role, if bought at a certain time in the interest rate cycle. It was not attractive when interest rates were so low a couple of years ago, but may perform a function in a portfolio now. It will not yield as much as direct holdings of gilts.

It really depends what you want from your bonds/gilts.

In my case, I want the gilts to provide a very safe secure known income producing return of 4-5% and I accept there may be no other capital gain in prospect, unless I chose to see sell the longer dated maturities, if interest rates fell appreciably over the next couple of years. So in my portfolio, I use them solely for that purpose - known annual income returns and fixed capital maturity dates.

NCYF/VAGP will produce larger swings either way on the capital upsides or downsides, at unknown times.

NCYF will produce a larger annual income and VAGP will produce a smaller annual income than equivalent holdings in direct gilts.

So it just depends on why you are holding them as to which one might suit best or indeed weight your comparative exposure to each one.

I have about 15 times as much in direct gilt holdings as I do in NCYF, BIPS and SMIF, but I do view them in different investment silos and I have a host of other investments in the same silo as NCYF, BIPS and SMIF.

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Re: Cash in on guilt(s) ... (Telegraph)

#625697

Postby richfool » November 6th, 2023, 12:14 am

thebarns wrote:Richfool,

I also have a position in NCYF and BIPS and SMIF, similar investment trusts These will yield more than individual gilts and will be more volatile and will largely move in the opposite direction of interest rates, so should perform well if your view on the trend of interest rates proves prescient.

I’ve looked at VAGP a few times and it has a defensive role, if bought at a certain time in the interest rate cycle. It was not attractive when interest rates were so low a couple of years ago, but may perform a function in a portfolio now. It will not yield as much as direct holdings of gilts.

It really depends what you want from your bonds/gilts.

In my case, I want the gilts to provide a very safe secure known income producing return of 4-5% and I accept there may be no other capital gain in prospect, unless I chose to see sell the longer dated maturities, if interest rates fell appreciably over the next couple of years. So in my portfolio, I use them solely for that purpose - known annual income returns and fixed capital maturity dates.

NCYF/VAGP will produce larger swings either way on the capital upsides or downsides, at unknown times.

NCYF will produce a larger annual income and VAGP will produce a smaller annual income than equivalent holdings in direct gilts.

So it just depends on why you are holding them as to which one might suit best or indeed weight your comparative exposure to each one.

I have about 15 times as much in direct gilt holdings as I do in NCYF, BIPS and SMIF, but I do view them in different investment silos and I have a host of other investments in the same silo as NCYF, BIPS and SMIF.


Thanks for your feedback.

Correct me if I am wrong, but I would have seen NCYF and IHHG as the more volatile, as opposed to VAGP, the latter being global aggregate bonds including global goverment bonds. IHHG tracks US corporate bonds.

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Re: Cash in on guilt(s) ... (Telegraph)

#625699

Postby thebarns » November 6th, 2023, 2:09 am

Richfool,

My own personal way of distinguishing the risk/volatility of these choices, as I would do it, which may not be the same as others, is to set direct gilt holdings as described previously in one safe low volatile silo, and into another silo I would put all of the other bond funds we have mentioned, being NCYF, BIPS, IHHG and VAGP - personally the way I would deal with it in my portfolio if I held VAGP and IHHG, would be to put them in that same silo and not necessarily view any within that silo as being of lower volatility than others within that silo, for my purposes.

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Re: Cash in on guilt(s) ... (Telegraph)

#626478

Postby richfool » November 9th, 2023, 10:28 pm

thebarns wrote:Richfool,

My own personal way of distinguishing the risk/volatility of these choices, as I would do it, which may not be the same as others, is to set direct gilt holdings as described previously in one safe low volatile silo, and into another silo I would put all of the other bond funds we have mentioned, being NCYF, BIPS, IHHG and VAGP - personally the way I would deal with it in my portfolio if I held VAGP and IHHG, would be to put them in that same silo and not necessarily view any within that silo as being of lower volatility than others within that silo, for my purposes.

I have to say, I'm not sure I properly see the attraction of bond ETF's such as VAGP, IGLH, or even VGOV, as their dividend yields are so low, (i.e. under 2.00%). Noted that Gov bonds pay less and are more secure than Corporate bonds. Is it that if/when interest rates drop their SP's will increase, thus providing a capital gain?

I appreciate that bonds should provide stability in the event of a stock market (equities) crash, if not, as in the past, their prices should move inversely to equities.

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Re: Cash in on guilt(s) ... (Telegraph)

#626498

Postby thebarns » November 10th, 2023, 1:36 am

Richfool,

My own position is told hold government gilts individually rather than through a specific government bond fund.

I can choose the individual coupon rate and the duration of the particular gilts I purchase, which tend to be the higher coupon gilts and short to medium range.

The government gilt funds will hold gilts of low and high coupon (thus reducing the average yield, minus of course the charges of the fund) and very broadly speaking reduce an annual income rate of 4-5.5%, to the 2% you mention. In addition, each government bond fund will hold bonds of different durations - some short only funds, medium, long and some a mixture.

If I was maximising annual income and minimising capital swings I would have high coupon rates with short duration - I might go to 5/6years, prepared to sit out any capital movements until maturity.

If I was looking to make capital gains (with minimal annual income) I’d pick low coupon gilts and the longer the duration, the greater the possibility of capital gains or losses along the way. This could be done with a long duration gilt fund.

Interest rates will normally move the price of gilts, as you state inversely to the direction of the interest movement, with the bond fund following that movement.

However bond funds, or indeed individually held gilts, will not always move inversely to equities.


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