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Bond Funds/ITs

General discussions about equity high-yield income strategies
daveh
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Bond Funds/ITs

#490098

Postby daveh » March 29th, 2022, 4:49 pm

I'm thinking of adding a bond fund to my Income portfolio. Looking at the Debt loan and Bonds section from IAAG's post on the High Yield Investment Trusts from the AIC trust site (viewtopic.php?f=31&t=33705) there are a number of possibilities:

Ticker     Premium     Yield      10 year Performance rank
NCYF 6.24 8.31% 1
SMIF 2.15 7.40% 3
AXI -8.68 6.52% 2
BIPS -8.96 6.48% 5
HDIV -9.08 5.86% 4


The 10 year performance was NAV performance from looking a 10 year graph on the Hargreaves Lansdown site. None of them performed that well in with NAV of the top 2 little more than flat over the period and the rest down over 10 years, so the return is mostly from the income.

Anyone have views on these ITs which they prefer and why? I only have cash available to invest in one at the moment and would probably add over the next few months with dividends received and new cash to bring it up to a full holding.

Alaric
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Re: Bond Funds/ITs

#490110

Postby Alaric » March 29th, 2022, 5:46 pm

daveh wrote:I'm thinking of adding a bond fund to my Income portfolio.



If investing outside of an ISA or SIPP, the tax position on the distributions may be of relevance. Some are taxed as income, others as dividends.Some both on different slices.

There was a thtread a while back.

MickR
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Re: Bond Funds/ITs

#490122

Postby MickR » March 29th, 2022, 6:47 pm

Hi

in my own view, I would be wary of investing in funds/IT's that mainly consist of high yielding bonds and preference shares. These are slowly being withdrawn by their issuers, so in 10 years time, the income will reduce from the fund, followed by the price. However, it looks like the prices have taken a hit over the last month or two, so if you are going to invest in these, better sooner or later

Mick

vand
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Re: Bond Funds/ITs

#490197

Postby vand » March 30th, 2022, 8:20 am

While an 8% payout may sound tempting, I wouldn't put too much into them for 2 reasons...

- Junk bond funds tend to lose capital value over time. Look at the US HYB ETF which shows an 80% nominal loss in capital value over the 30 years. That offsets a hell of a lot of the income recieved.

- In the short term they correlate more with equities than government bonds, so offer none of the diversifying properties of bonds

Personally I would rather take my chances with bluechip equities with a 6%> yield, or perhaps a fund like UK:HFEL, which at least has shown its ability to maintain capital over longer time periods

Newroad
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Re: Bond Funds/ITs

#490204

Postby Newroad » March 30th, 2022, 8:38 am

Hi DaveH.

I would disagree a little with the previous posts (and in the interests of full disclosure, hold HDIV, BIPS and the less related VAGP).

On recent performance (not that I think it's that relevant) HDIV and BIPS are down over three months but up over the last month. And in terms of diversification, whilst they are more correlated to equities than VAGP, it is far from a correlation of 1.0. In particular, when I last looked at it in 2020, I calculated vs VWRL (i.e. "the equity market") the correlations were

    BIPS (then CMHY): 0.797
    HDIV: 0.659
    VAGP (though this is based on fewer data, as it only started in 2019): -0.111

By way of comparison, most global equity investment trusts have a correlation in the order of 0.85 with VWRL.

I'd actually have a look at how NAV has moved with all of the bond investment trusts. If you're a buy and hold sort (with the occasional rebalance perhaps) my guess is that when you do, HDIV and BIPS at their current discounts will appear to offer good value and some diversification, in particular as compared to NCYF. However, as always, it is situation dependent and do your own research.

Regards, Newroad

88V8
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Re: Bond Funds/ITs

#490243

Postby 88V8 » March 30th, 2022, 10:15 am

You may have seen this thread https://www.lemonfool.co.uk/viewtopic.php?p=489555#p489555

I hold AXI, BIPS, NCYF, MCT, and SHRS which is more equities but props itself up with some Fixed Interest.

The question now with rates rising and QE at last being run down... perhaps... is whether the income from these ITs will offset the fall in the SP.

I've been an income investor so the capital performance is of less interest to me. If TR matters to you, perhaps look elsewhere.
Your tax position is also relevant - if the income will be taxed, you have less to offset any fall in SP.

V8

MDW1954
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Re: Bond Funds/ITs

#490657

Postby MDW1954 » March 31st, 2022, 5:38 pm

vand wrote:Personally I would rather take my chances with bluechip equities with a 6%> yield, or perhaps a fund like UK:HFEL, which at least has shown its ability to maintain capital over longer time periods


HFEL is an IT, not a fund. And it's also down 17% over five years.

MDW1954

vand
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Re: Bond Funds/ITs

#490682

Postby vand » March 31st, 2022, 7:53 pm

MDW1954 wrote:
vand wrote:Personally I would rather take my chances with bluechip equities with a 6%> yield, or perhaps a fund like UK:HFEL, which at least has shown its ability to maintain capital over longer time periods


HFEL is an IT, not a fund. And it's also down 17% over five years.

MDW1954


But it has at least kept pace with inflation over 20-30 years, whereas junk bond funds haven't.

Of course you are right that HFEL is an IT, althoigh I don't particularly see what the relevance of that is..

MDW1954
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Re: Bond Funds/ITs

#490714

Postby MDW1954 » March 31st, 2022, 10:59 pm

vand wrote:
MDW1954 wrote:
vand wrote:Personally I would rather take my chances with bluechip equities with a 6%> yield, or perhaps a fund like UK:HFEL, which at least has shown its ability to maintain capital over longer time periods


HFEL is an IT, not a fund. And it's also down 17% over five years.

MDW1954


But it has at least kept pace with inflation over 20-30 years, whereas junk bond funds haven't.

Of course you are right that HFEL is an IT, althoigh I don't particularly see what the relevance of that is..


Simply that it's an IT, not an investment fund. And that is highly relevant, if you're concerned about minimising brokerage charges.

MDW1954

richfool
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Re: Bond Funds/ITs

#490737

Postby richfool » April 1st, 2022, 2:44 am

daveh wrote:I'm thinking of adding a bond fund to my Income portfolio. Looking at the Debt loan and Bonds section from IAAG's post on the High Yield Investment Trusts from the AIC trust site (viewtopic.php?f=31&t=33705) there are a number of possibilities:

Ticker     Premium     Yield      10 year Performance rank
NCYF 6.24 8.31% 1
SMIF 2.15 7.40% 3
AXI -8.68 6.52% 2
BIPS -8.96 6.48% 5
HDIV -9.08 5.86% 4


The 10 year performance was NAV performance from looking a 10 year graph on the Hargreaves Lansdown site. None of them performed that well in with NAV of the top 2 little more than flat over the period and the rest down over 10 years, so the return is mostly from the income.

Anyone have views on these ITs which they prefer and why? I only have cash available to invest in one at the moment and would probably add over the next few months with dividends received and new cash to bring it up to a full holding.


I would stay away from bonds at the current time. They are almost guaranteed to suffer a capital loss as interest rates rise.

As others have said, if you seek high income, you might as well go for high yielding equities/equity IT's.

moorfield
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Re: Bond Funds/ITs

#490769

Postby moorfield » April 1st, 2022, 8:37 am

I have been looking at Longbow (LBOW) , senior secured property debt, as a possible long term replacement for the preference shares I hold (SAN, s/p high and flat for the last few years, and RE.B, once it has made up its arrears which I think it should do). Also part of a grander plan to start rotating into ITs over the next few years as my overall portfolio income grows ever closer to its intended target.

Edit: Although it does appear to be winding itself up, so maybe not.

torata
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Re: Bond Funds/ITs

#490799

Postby torata » April 1st, 2022, 10:36 am

moorfield wrote:Edit: Although it does appear to be winding itself up, so maybe not.


At least you discovered that now, before having bought it! :lol:

The one on my watchlist is BioPharma Credit.

torata

moorfield
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Re: Bond Funds/ITs

#490800

Postby moorfield » April 1st, 2022, 10:41 am

torata wrote:
moorfield wrote:Edit: Although it does appear to be winding itself up, so maybe not.


At least you discovered that now, before having bought it! :lol:




Indeed, well I do usually try and google/wade through the latest reports before pressing the button !

stevensfo
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Re: Bond Funds/ITs

#491101

Postby stevensfo » April 2nd, 2022, 3:32 pm

daveh wrote:I'm thinking of adding a bond fund to my Income portfolio. Looking at the Debt loan and Bonds section from IAAG's post on the High Yield Investment Trusts from the AIC trust site (viewtopic.php?f=31&t=33705) there are a number of possibilities:

Ticker     Premium     Yield      10 year Performance rank
NCYF 6.24 8.31% 1
SMIF 2.15 7.40% 3
AXI -8.68 6.52% 2
BIPS -8.96 6.48% 5
HDIV -9.08 5.86% 4


The 10 year performance was NAV performance from looking a 10 year graph on the Hargreaves Lansdown site. None of them performed that well in with NAV of the top 2 little more than flat over the period and the rest down over 10 years, so the return is mostly from the income.

Anyone have views on these ITs which they prefer and why? I only have cash available to invest in one at the moment and would probably add over the next few months with dividends received and new cash to bring it up to a full holding.


Not recommending, but a few not on that list are:

NBMI

SEQI

With RPI inflation at 8.2%, the only advice I would give is to concentrate on diversification, geographical as well. If you look at the factsheets, you see the % of countries.

Steve


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