New to investing, worried about my 40-60% Funds

[mc2fool]

I have some TP05 for the same reasons. Is that the same as TIP5.L?

Yes TIP5 and TP05 are effectively the same thing, both are US$ holdings, one is priced in £ ( that is priced and NOT hedged ) the other in US $ the underlying exposure is the same, different platforms allow you to trade one or the other.

There are a few more like that with the iShares range that I know of. Some platforms trade both, some trade one or the other.

iShares UK site lists the TIP5 variant but it might be simpler to buy TP05 if the option is there.

Thanks for clarifying that, I found the iShares website totally confusing about their TIPS funds. I know TP05 is not hedged. It seemed like a simple way to buy dollars with maybe also some inflation protection. The closest thing I could find to cash but not in pounds. I think I've made my fears about a run on the pound etc. clear elsewhere, so that's why I was looking to hold dollars. I'll probably add a bit more to TP05. In a way if it doesn't do well that'll be a good thing as that means I'll be wrong about the UK's post Brexit performance. I sincerely hope I have to come back and apologize to the Brexiteers but that's not the way I'm betting.

Are you sure that TP05/TIP5, indeed, any index linkers, are on positive real redemption yields?

It wasn't so long ago that both US and UK index linkers were on negative real redemption yields, and had been for several years, meaning that investors were locking in a real loss to maturity.

See https://moneyweek.com/investments/bonds/government-bonds/604162/index-linked-bonds-could-prove-a-costly-inflation-hedge.

I'm unclear on the situation now but I see TP05/TIP5 currently has a real yield of -1.01%, I take that to be running yield, and a Weighted Avg YTM (redemption yield) of 2.24% but I don't believe that's a real yield, so if inflation is more than that then you're losing money in real terms, no?

https://www.ishares.com/uk/individual/en/products/287202/ishares-tips-0-5-ucits-etf

Maybe this is better in a thread of its own elsewhere ...

My main objective is to protect against a catastrophic collapse in the pound which I think is a real possibility, hard to see why not. A slight loss in value of 1 or 2% per year with TP05 I can accept. My cash pounds are currently losing 10 or 11% a year anyway.
But TBH my understanding of the finer points is minimal, though I know it's a kind of fund with TIPS of short average duration which I thought was a good thing.
Also it seems likely that US inflation will be short-lived as it's a massive country and economy with huge capability and resources whereas post Brexit the UK is an economic basket case with very little assets, huge debt, and descending rapidly into sub third world status.

Fair enuff. A collapse in the pound doesn't overly concern me as the majority of my investments are in global equities (and in fact even the FTSE 100 goes up when the £ goes down), and most of my guaranteed income is from non-UK pensions.

Still, would be interested if anyone else has looked into if negative-real-redemption-yields of index linkers are still so....

[Hariseldon58]

GIST is an interesting ETF. Unhedged 1-10 year global index linked bonds. There is also a hedged version GISG.

I'll look into that, thanks.

That’s an interesting ETF

With regard to the real yield of the US Tips, the real yield is marginally positive on ITPS and slightly negative on the 5 yield version TIP5 or TP05. The shorter dated version is slightly negative because of the shorter duration and shape of the yield curve. (The convexity is the driving factor)

Tips protect against unexpected inflation, however that expected inflation is priced into regular US Treasuries and is quite low….one might take an opinion that those expectations might be wishful thinking.

The key factor is that in the event of stagflation you will be very happy you have Tips and in the event that central banks keep a lid on inflation and a recession is avoided , interest rates remain low then you won’t lose on Tips.

If interest rates rise then that will resolve itself and you will be made good by increased coupons and maturing bonds buying new coupons at higher rates of interest and the shape of the yield curve shortening on the existing bonds as time passes leading to a rise in values as they draw closer to maturity.

I believe they are a great insurance product against the worst coming to pass and if all goes well then other parts of the portfolio will do well.

[Hariseldon58]

Good video about index linked bonds here https://m.youtube.com/watch?v=NJrtspvT_FU from Pensioncraft. Clear explanations with examples and it’s fairly recent.

[Hariseldon58]

Yes TIP5 and TP05 are effectively the same thing, both are US$ holdings, one is priced in £ ( that is priced and NOT hedged ) the other in US $ the underlying exposure is the same, different platforms allow you to trade one or the other.

There are a few more like that with the iShares range that I know of. Some platforms trade both, some trade one or the other.

iShares UK site lists the TIP5 variant but it might be simpler to buy TP05 if the option is there.

Thanks for clarifying that, I found the iShares website totally confusing about their TIPS funds. I know TP05 is not hedged. It seemed like a simple way to buy dollars with maybe also some inflation protection. The closest thing I could find to cash but not in pounds. I think I've made my fears about a run on the pound etc. clear elsewhere, so that's why I was looking to hold dollars. I'll probably add a bit more to TP05. In a way if it doesn't do well that'll be a good thing as that means I'll be wrong about the UK's post Brexit performance. I sincerely hope I have to come back and apologize to the Brexiteers but that's not the way I'm betting.

Are you sure that TP05/TIP5, indeed, any index linkers, are on positive real redemption yields?

It wasn't so long ago that both US and UK index linkers were on negative real redemption yields, and had been for several years, meaning that investors were locking in a real loss to maturity.

See https://moneyweek.com/investments/bonds/government-bonds/604162/index-linked-bonds-could-prove-a-costly-inflation-hedge.

I'm unclear on the situation now but I see TP05/TIP5 currently has a real yield of -1.01%, I take that to be running yield, and a Weighted Avg YTM (redemption yield) of 2.24% but I don't believe that's a real yield, so if inflation is more than that then you're losing money in real terms, no?

https://www.ishares.com/uk/individual/en/products/287202/ishares-tips-0-5-ucits-etf

Maybe this is better in a thread of its own elsewhere ...

My main objective is to protect against a catastrophic collapse in the pound which I think is a real possibility, hard to see why not. A slight loss in value of 1 or 2% per year with TP05 I can accept. My cash pounds are currently losing 10 or 11% a year anyway.
But TBH my understanding of the finer points is minimal, though I know it's a kind of fund with TIPS of short average duration which I thought was a good thing.
Also it seems likely that US inflation will be short-lived as it's a massive country and economy with huge capability and resources whereas post Brexit the UK is an economic basket case with very little assets, huge debt, and descending rapidly into sub third world status.

Fair enuff. A collapse in the pound doesn't overly concern me as the majority of my investments are in global equities (and in fact even the FTSE 100 goes up when the £ goes down), and most of my guaranteed income is from non-UK pensions.

Still, would be interested if anyone else has looked into if negative-real-redemption-yields of index linkers are still so....

Here is a link to Personal Assets Trust newsletter, some good info about Index Linked bonds https://www.patplc.co.uk/Portals/0/Literature/Quarterly%20Report/PAT/2022/Q2/PAT%20Investment%20Report%20-%20April%202022.pdf

I have posted a link to a Pensioncraft video about Linkers, again worth watching.

Here is a link to TIPs prices https://www.wsj.com/market-data/bonds/tips

TIPs are about the expectations for inflation, the 10 year yield on a US treasury is 2.95% yesterday and for a 10 year TIP it is just under 0.3%, the break even inflation is thus 2.65% for the next 10 years (deduct the latter from the former)

If you believe 10 year inflation will average less than 2.65% then you buy conventional bonds but if you think inflation may exceed that rate then TIPs are the way to go. The upside on the TIPs could be considerable, its about expectations……personally I feel they offer insurance.

The prices on TIPs is illustrated by the 2032 January TIP which has a coupon of 0.125% and is priced just under $99 ( the digits after the dollar amount are 1/32 ‘s not decimal) its priced just below par, the yield to maturity is .25%, the capital you receive will be the inflation linked value of the original bond price ( in the event of deflation the indexed value can go down but not below the par value) thus you receive your original capital back adjusted for inflation and the interest payments are based on the inflation adjusted principal of the bond.

Looking out 2045 TIPs you have a real return of just under 1%, the point at which yields turn negative is at less than 5 years, but that reflects the fact that a 5 year conventional US Treasury yields less than a 10 year.

[mc2fool]

Good video about index linked bonds here https://m.youtube.com/watch?v=NJrtspvT_FU from Pensioncraft. Clear explanations with examples and it’s fairly recent.

Thanks for that and the other links & info. All bookmarked for study later.

Bonds are a curious thing, as they are, in one way, the simplest and most straightforward investment to understand as (held to maturity) you know the outcomes from the start (defaults aside). Index linkers add a twist of course, so, reading for later....