I have a fairly well-diversified collection of income-based share ITs (a mixture of part of Luni's B8 and B7) and a few bond-based ITs and ETFs. The ratio is approximately 70%/30%, equities/bonds.
In the light of all the recent publicity regarding the imminent rise in the rate of inflation, the abolition of quantitive easing in the US and the predicted rise in interest rates, should I be thinking about getting rid of anything relating to bonds and replacing them with equity based ITs?
My primary bond holdings are City Merchants High Yield Trust (CMHY), CQS New City High Yield Trust (NCYF) and the iShares GBP Corporate Bond ETF (SLXX).
At present I am reinvesting all dividend income so I would prefer not to risk losing capital.
Many thanks
Karen
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Bond investemts - keep or sell?
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- Lemon Half
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Re: Bond investemts - keep or sell?
Peltiq wrote:I would prefer not to risk losing capital.
I'm invested for income, don't really care about capital, so if anything I'll be looking to add to my Fixed Interest over the coming months.
But imho you should get out.
V8
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- Lemon Quarter
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Re: Bond investemts - keep or sell?
Are you bond funds held in a tax wrapper? Straight cash ISAs are currently more attractive than bonds. Bond funds are even less attractive because of the fees/costs. If your bond funds are outside a tax wrapper, straight cash deposits and bonds protected by the FSCS are better. If your bond funds are in a SIPP, that is a tricky one. You need to consider personal factors here: age, investment purpose, time frame, risk tolerance...
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- Lemon Half
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Re: Bond investemts - keep or sell?
I am a little confused. You have a preference of not losing capital. I assume, given that no-one wants to lose capital, this means you have a preference for a balanced portfolio that is less exposed to a negative impact on capital from some "event risk" (you mention QE unwind, inflation etc. as such potential events). All sensible, and yet, bonds are a smaller proportion of your portfolio than equities and what you are considering is altering that ratio further, exposing yourself to further (other) event risks that diversification might otherwise provide your capital greater protection from.
Don't get me wrong, personally I see the bond market as overvalued (admittedly I have done for months, if not years - and am humble enough to admit I have called this wrong). I also see the bond market as one that is significantly misunderstood by many personal investors (and institutional come to that, but that's a whole different story). I don't see a place for any investments there in my own portfolio, but my risk appetite (and market views) is different to yours. But if I read you correctly as someone who places capital preservation at least as highly as investment return, then I feel it necessary to question any thoughts on reducing portfolio diversification.
You at least recognise that from a capital perspective the bond market can go down, and many who perhaps see the "fixed" in Fixed Income fail to acknowledge this, so might want to consider cash, however boring this might sound, as a suitable alternative asset class which reduces your specific concerns about capital invested in the (corporate) bond market, without reducing portfolio diversification.
Don't get me wrong, personally I see the bond market as overvalued (admittedly I have done for months, if not years - and am humble enough to admit I have called this wrong). I also see the bond market as one that is significantly misunderstood by many personal investors (and institutional come to that, but that's a whole different story). I don't see a place for any investments there in my own portfolio, but my risk appetite (and market views) is different to yours. But if I read you correctly as someone who places capital preservation at least as highly as investment return, then I feel it necessary to question any thoughts on reducing portfolio diversification.
You at least recognise that from a capital perspective the bond market can go down, and many who perhaps see the "fixed" in Fixed Income fail to acknowledge this, so might want to consider cash, however boring this might sound, as a suitable alternative asset class which reduces your specific concerns about capital invested in the (corporate) bond market, without reducing portfolio diversification.
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- Lemon Slice
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Re: Bond investemts - keep or sell?
I find more attraction in cash than bonds at the moment, particularly if the cash concerned is in high-interest current accounts and regular savers of the sort that enthuse the people who frequent the MSE forums. But even Premium Bonds seem more attractive to me than gilts. PBs give you a roughly 1% p.a. tax-free return on a Treasury-guaranteed investment with a chance to pipe-dream of winning a million, and no danger of a loss in nominal capital; no inflation-protection, of course, but you hope to get that from your equities.
We have also diversified into ETCs holding gold and silver.
We have also diversified into ETCs holding gold and silver.
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