Bond funds for reduced volatility

[EssDeeAitch]

Can anyone recommend some government and/or corporate bonds for further research? My aim is to reduce volatility within my portfolio whilst providing at least an inflation covering growth/yield rate from said bonds.

I would also like to keep fees to a minimum and would think that ETF's are the way to achieve that. Comments appreciated

[Hariseldon58]

Good luck !!!

Seriously it’s not going to be easy....NS&I are secure and rates are not that different from short corporate bonds and better than gilts with no volatility over capital values.

Used to hold IS15 but YTM of portfolio is a shade over 1.5% , deduct the .2% management fee and it’s hard to see that it is a deal.

There is a very short gilts ETF , ticker ERNS and if you want dollars, us treasury VUTY

[Alaric]

Seriously it’s not going to be easy....NS&I are secure and rates are not that different from short corporate bonds and better than gilts with no volatility over capital values.

There's the ishares £ Corporate Bond ETF (SLXX). No capital guarantee naturally enough, although in practice the price seems to creep upwards over time.

https://www.ishares.com/uk/individual/e ... -ucits-etf

[Gan020]

Here is a link to government gilt yields:
https://www.bloomberg.com/markets/rates-bonds/government-bonds/uk

As you can see the 2, 5 and 10 year yields don't exceed 0.5% and even the 30 year yield does not exceed 1%.

So, there are no UK government gilts that will pay you inflation or even anything close to it. Your capital would be protected of course.

There are a raft of corporate bond funds carrying different levels of risk depending on the investment grade of the companies invested in. The ishares ones are a good place to start to familiarise yourself with what's on offer. My notes say the tickers are IS15, ISXF, SLXX which are Sterling tracker bonds of varying terms. Note the price of bond funds such as these can go up and down just like equities so altough you should make money over the long term, losses are possible over a one year time horizon. They are however, far less volatile than equities which is one of your criteria.

The general topic of bond funds has been covered before on this site. I'm sure a bit of searching will find you some threads to review. One of the regulars may be able to point out some of the better ones

[dealtn]

Here is a link to government gilt yields:
https://www.bloomberg.com/markets/rates-bonds/government-bonds/uk

As you can see the 2, 5 and 10 year yields don't exceed 0.5% and even the 30 year yield does not exceed 1%.

So, there are no UK government gilts that will pay you inflation or even anything close to it. Your capital would be protected of course.

It's unlikely, but not impossible, the UK will default. However capital is only protected if held to maturity, and bought "at par". Gilts are mostly only available for purchase at higher prices than that though, although you can argue that capital "loss" in that situation merely reflects, and offsets, the higher than market coupon you will receive.

However, the issue with holding to maturity is the "reduced volatility" you might be seeking to avoid. Gilt prices might have rallied by say 30% over the last year, and whilst we don't know what the future looks like, is it impossible for them to reverse in a similar timeframe? Of course not. Indeed in many scenarios it could turn out far worse, weak currency, inflation, interest rates rising to protect the currency, for example. Alternatively rates could be cut into negative territory even, as we have seen across the continent, to try and boost economic demand.

We don't know, but to assume fixed income products, be they Gilts or otherwise, are without volatility is extremely suspect.

[hiriskpaul]

Can anyone recommend some government and/or corporate bonds for further research? My aim is to reduce volatility within my portfolio whilst providing at least an inflation covering growth/yield rate from said bonds.

I would also like to keep fees to a minimum and would think that ETF's are the way to achieve that. Comments appreciated

Government and investment grade corporates very popular right now, which unfortunately means prices are high and there are no instruments that will guarantee that you match inflation. For no risk to capital you can use FSCS protected bank deposits and NS&I income bonds, but these are unlikely to match inflation at present. To have any chance of higher returns means taking on duration risk and/or credit risk and taking on that risk means you may end up with lower returns than inflation, or even bank deposits. Both deposits and bonds will reduce volatility across your portfolio. Government bonds likely to be better at reducing portfolio volatility, but also likely to give lower returns than corporate bonds if equities perform well. Gilt ETFs such as Vanguard's VGOV and GBP corporate bond ETFs such as SLXX may be good options, but you can now also get GBP hedged global bond ETFs at reasonable running costs. These will be more diversified than traditional GBP bond funds and should provide comparatively lower volatility, with little currency risk. iShares AGBP is a GBP hedged global fund, containing both government and investment grade corporate bonds and the TER is a very reasonable 0.10%. If you want a little more credit risk, for slighter higher expected returns but less portfolio diversification benefits, iShares CRHG is a good option, TER 0.25%.

For what you want to do, I think ETFs are definitely the way to go compared with individual bonds.

[JNC3]

Government and investment grade corporates very popular right now, which unfortunately means prices are high and there are no instruments that will guarantee that you match inflation. For no risk to capital you can use FSCS protected bank deposits and NS&I income bonds, but these are unlikely to match inflation at present. To have any chance of higher returns means taking on duration risk and/or credit risk and taking on that risk means you may end up with lower returns than inflation, or even bank deposits. Both deposits and bonds will reduce volatility across your portfolio. Government bonds likely to be better at reducing portfolio volatility, but also likely to give lower returns than corporate bonds if equities perform well. Gilt ETFs such as Vanguard's VGOV and GBP corporate bond ETFs such as SLXX may be good options, but you can now also get GBP hedged global bond ETFs at reasonable running costs. These will be more diversified than traditional GBP bond funds and should provide comparatively lower volatility, with little currency risk. iShares AGBP is a GBP hedged global fund, containing both government and investment grade corporate bonds and the TER is a very reasonable 0.10%. If you want a little more credit risk, for slighter higher expected returns but less portfolio diversification benefits, iShares CRHG is a good option, TER 0.25%.

For what you want to do, I think ETFs are definitely the way to go compared with individual bonds.

The thing putting me off investing in Bond ETFs at present are the current high prices of DM Goverment bond and investment grade bond ETF.

There is also a new Hedged Aggregated Bond ETF from Vanguard - VAGP - does anyone hold this ?

Alternatively at a higher risk & higher return there is an Emerging Market Gov Bond ETF - SBEG ?