Waspfan wrote:Urbandreamer wrote:mc2fool wrote:Dod101 wrote:Yes but of course, it may seem obvious, but there is a big difference between buying a bond and buying a bond fund.
Indeed, but there are also big differences between different kinds of bond funds. My understanding of the bond component of the VLS funds is that the constituent bonds are all held to maturity.
Hmmm ... as I type that I begin to doubt my understanding
... anyone know if I'm right?
As I understand it many bond funds adopt what is called a ladder approach. That is to say that they buy and sell bonds with differing maturity dates to adjust both returns and risk in a rolling manner. This is particularly the case as the yield curve inverts. If you are running a bond fund, why invest in long dated bonds with lower returns than short dated ones with higher returns?
In many ways bonds are just as complicated as equities*, and just as much at risk from political interference. Can anyone argue that QE and high inflation doesn't affect the total return of existing bonds?
As for "did anyone predict a bad time for bonds in advance", the simple answer is yes they did. Now they could have been wrong, in this case they were not. ALL such predictions take the form of "I think this will happen because of XYZ". If XYZ comes to pass then they tend to be right, while if it doesn't then they tend to be wrong.
If you look back a year or two you will find many predicting high inflation. Usually because of QE, though raw material prices were the thing a year ago.. Today you will find many predicting high inflation, because scope to control it is so limited. You will also find predictions about other things. For example that energy companies won't be investing in North sea assets. If true, and I suspect that it will be, then that will affect support companies, though not necessarily the energy companies themselves. It will also likely mean high energy costs for quite some time. Many predictions are just stating the obvious, and at that level tend to come true more often than not.
*Actually I regard bonds as too complicated for me to consider and invest via a fund that will do the complicated stuff for me.
So the only bonds I have are in Multi Asset funds such as these funds, so are we saying they are managed in such a way that they aren't going to be the same level of drag on my fund value as say a stand alone Bond.
Basically I just need to know if the bonds in these 3 funds are managed in a way to attempt too much of a loss.
Liontrust MA Passive Interm Passive S Acc
Royal London Sustainable Div C Acc
Vanguard Lifestrategy 60%
Looking at the three funds, the first is a 60:40 fund of index funds, ie a bit like LifeStartegy 60 but more expensive at .38% plus the charges on the underlying funds.
The Royal London is an equity fund, the Div stands for Diversified. Out of interest I compared these three with the respected Finsbury Growth and Income Trust on a total return basis over the last 1,3 & 5 years..Finsbury finishes bottom in all 3 time periods, if you had posed that as a question 5 years ago then the opinion of many would be that Finsbury would likely to be the winner.
If your portfolio is diversified then you will (almost) always hold investments that make you uncomfortable, thats normal.
Personally I hold a substantial 6 figure sum in bonds, they provide certainty of money to support my full lifestyle for 10 years what ever happens to my risk portfolio (could live comfortably off these for far longer if necessary), they have not fallen in value, yet.
They provide optionality in bad times.
They protect against inflation (sort of) they are US Treasury Inflation Protected Securities) Uk inflation may vary from US inflation, if it is substantially higher than UK, £ currency will probably suffer against the dollar, its a reasonable proxy.
Whilst down in $ terms they are up in £.
I don’t particularly like bonds but they serve a purpose in a broadly diversified portfolio, a well diversified portfolio is more than just a vanilla passive bonds and equities fund such as Vanguard LifeStrategy, good as they are. There are far more elements, in a bull market, as we have had for the last 10+ years, everything seems to do well and we can forget the benefits of diversification and certainty.
Saying that equities alone is good enough is rather naive, if there is a severe bear market, than such an approach is very uncomfortable, as I know from experience. Given your concerns over very modest falls in elements of your portfolio I think you might holding such a portfolio to be unsustainable in a severe bear market.
I would suggest much wider diversification or holding part of your portfolio in something like Capital Gearing Trust, a wealth preserver ( they go down too, but much less) you’ll read about them a lot in a down market !
Or maybe your expectations weren't in the right place to start with. CGT, PNL & RICA aren't meant to shoot the lights out and, even if you weren't expecting that (I'm sure you weren't), there will always be better performers than them around.