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Euphoria
Sara G
Posted: 08 April 2017 21:02:38(UTC)

Joined: 07/05/2015(UTC)
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No chastisement from me, just the observation that the charge and premium reduce the yield by 3.8%... but it's still a lot better than nothing if you need the income and want to diversify away from equities. Twenty Four are bond specialists so probably better than most.
2 users thanked Sara G for this post.
Keith Hilton on 08/04/2017(UTC), Mickey on 09/04/2017(UTC)
King Lodos
Posted: 09 April 2017 01:20:56(UTC)

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Keith Hilton;45667 wrote:
I'd been avoiding bonds for some time, but with cash yielding 0% in my SIPP, I'd been considering venturing back into bonds for a while. Being recently retired, it seems like this may be a sensible move, as I'm totally reliant upon my pf for income and had no exposure to bonds (except for a small amount of index linked bonds in an uncrystallised pension).

TwentyFour Select Monthly Income (SMIF) had been on my radar for a while. Whilst I dithered, John Baron has added this to his income pf, so I've dived in before the price rises further at a 7.2% yield. I await my due chastisement from those that may know better.


I've been buying bonds and selling stocks .. Corporate and High Yield bonds don't diversify you much from stocks – there's a good chance they go down together.

But if stocks got a little ahead of themselves with Trump, I think some of the yields on bonds and preferred shares might represent slightly better value .. My favourite fund in the sector is still GAM Star Credit Opportunities, and I like Royal London Short Duration High Yield and Short Duration Credit.

Rate hikes and inflation, at some point, could become problematic for bonds .. But I think bonds are a good bet if growth underwhelms, but we avoid recession.
Mr Helpful
Posted: 09 April 2017 08:11:54(UTC)

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Sara G;45663 wrote:
Jeff Liddiard;45660 wrote:
Micawber;45653 wrote:
Sara G;45644 wrote:
[quote=

btw I just bought some INXG if that's a clue.


Micawber, I didn't know what INXG was so looked it up on Morningstar. I'm wondering if you have read their research report on it... they raise concerns about duration risk as well as performance against active vehicles. Or are you thinking that interest rates will remain low (or even fall) for decades?


No I haven't read Morningstar's report. I am thinking that inflation will go up while interest rates in UK will remain low for the next two years, and that INXG will go up further with that tide - it's gone up 4.6% ytd, and 6.83% since I watchlisted it on 23 Dec. I don't see it as a long term holding, but as something I am likely to sell within a year or two.


So where does that leave you Sara? I was also interested in Micawber's purchase of INXG, but I'm still none the wiser if I should buy or not.


Jeff, my conclusion is that if I were to add a fixed income holding I'd probably go for an actively managed strategic bond fund. I try not to be too swayed by what one analyst thinks, but the arguments against are very persuasive in this case I think. If Micawber is using it as a short term place to park cash, then maybe that's OK, but it's not for me. I don't have any immediate plans though - the last time I bought bonds was in 2008/9 when they were cheap, and it would probably take something similar to tempt me back in - but I'm doing my research in the meantime.
[/quote]


This Fixed Income area is an ongoing headache with QE, far more of a headache than Stocks.
Keep reminding myself that most buyers of Gilts (nominal or IL) are institutions that HAVE TO BUY GILTS AT ANY PRICE TO MATCH LIABILITIES .
As retail investors we are not obliged as they say to join in the dance.

Part of the attraction of INXG was the addition to the natural yield, of a tapering distribution of the eye-watering capital gains provided over several previous years. The calcs are quite complex but dependent on inflation rate assumed, yields on IL Gilts could now be negative.
We progressively sold right out between JU14 thru to FE16.

One remaining sweet spot in Bonds seems to be Short Term Investment Grade Corporate Bonds (IS15). Very low volatility but no guaranteed -ve correlation in a Stock downturn.
Other than that forced to hold semi-possible Fixed Income substitutes such as :-
+ REITs
+ Renewable Energy
+ Infrastructure
and the ultimate non correlated asset class of ample cash.

So the headache of Fixed Income continues to vex in today's QE/Central Bank(s) driven distorted climate.
3 users thanked Mr Helpful for this post.
Sara G on 09/04/2017(UTC), Micawber on 09/04/2017(UTC), Jeff Liddiard on 10/04/2017(UTC)
Keith Hilton
Posted: 09 April 2017 12:19:19(UTC)

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Sara G;45670 wrote:
No chastisement from me, just the observation that the charge and premium reduce the yield by 3.8%... but it's still a lot better than nothing if you need the income and want to diversify away from equities. Twenty Four are bond specialists so probably better than most.


Not sure that I follow your calculations here Sara. SMIF paid out 6.852p per share in the previous 12 months. At an sp of 96p, this equates to an historic yield of 7.14%. I do recognise though that there may be a capital loss at some future point, especially if interest rates were to rise.
xcity
Posted: 09 April 2017 12:30:45(UTC)

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Mr Helpful;45678 wrote:
One remaining sweet spot in Bonds seems to be Short Term Investment Grade Corporate Bonds (IS15).

I have a very simple approach atm.
I avoid funds/ITs etc because they are too complex for me to calculate all the risks, and they add a tier of costs taken from an already tiny yield.
I decide when I will want the money (or want to have it available) and find the best safe bond maturing thenish.
I don't have to avoid riskier bonds completely, since I can calculate the risks for myself.
I don't have to worry about rising interest rates affecting valuation since I'll be holding to maturation and the timescales are very short.
Expenses are low - just one buy transaction for each one.
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Jeff Liddiard on 10/04/2017(UTC)
Sara G
Posted: 09 April 2017 12:46:30(UTC)

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Keith Hilton;45684 wrote:
Sara G;45670 wrote:
No chastisement from me, just the observation that the charge and premium reduce the yield by 3.8%... but it's still a lot better than nothing if you need the income and want to diversify away from equities. Twenty Four are bond specialists so probably better than most.


Not sure that I follow your calculations here Sara. SMIF paid out 6.852p per share in the previous 12 months. At an sp of 96p, this equates to an historic yield of 7.14%. I do recognise though that there may be a capital loss at some future point, especially if interest rates were to rise.


I just double checked - as I must admit I'd had a glass of wine at the time of my last post!...

Disregarding any capital growth / loss, and assuming yield will be similar over the next year and that your holding period is one year, then the premium is currently 2.6% and the ongoing charge 1.21% (according to HL), so any yield you receive would be offset by these amounts. Of course if you hold for longer then the impact of the premium reduces.

...Or does the yield figure take these into account? Apologies if I have got this wrong.
1 user thanked Sara G for this post.
Keith Hilton on 09/04/2017(UTC)
srg751
Posted: 09 April 2017 17:16:51(UTC)

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I see that the 'Euphoria' topic is seeing quite a bit of attention and that the subject of Bonds is being discussed more than any other time over the past 8 years.
Bonds haven't become more or less risky than stocks. Look at it this way, if I were to say that the FTSE will make 15000 by 2025, you would think I was nuts. But in reality, that would only mean that returns will be similar to past returns, say 8% pa. so why all the talk of seeking sanctuary in bonds that have been on a bull run since I was a kid?.
Don't get it. Am I missing something, or, as I see it, were in the midst of the easiest investing decision in our lifetimes.
3 users thanked srg751 for this post.
Sara G on 09/04/2017(UTC), Mr Helpful on 10/04/2017(UTC), Jeff Liddiard on 10/04/2017(UTC)
xcity
Posted: 09 April 2017 17:47:28(UTC)

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srg751;45689 wrote:
Bonds haven't become more or less risky than stocks. Look at it this way, if I were to say that the FTSE will make 15000 by 2025, you would think I was nuts. But in reality, that would only mean that returns will be similar to past returns, say 8% pa. so why all the talk of seeking sanctuary in bonds that have been on a bull run since I was a kid?

If you expect the FTSE to hit 15000 by 2025 then you should be 100% equities; possibly with gearing. Bonds will certainly not double in price.
15000 is not impossible, but I don't think it is what I expect.

Equally though, I've not seen an indication that people are talking bond buying. They're talking short bonds as a higher yielding version of cash. If the FTSE gets to 15000 via 4000, and they switch back to equities when they are lower, they will do better than 100% equiteis all the way through.
2 users thanked xcity for this post.
Mr Helpful on 10/04/2017(UTC), Jeff Liddiard on 10/04/2017(UTC)
Sara G
Posted: 09 April 2017 17:51:30(UTC)

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srg751;45689 wrote:

I see that the 'Euphoria' topic is seeing quite a bit of attention and that the subject of Bonds is being discussed more than any other time over the past 8 years.
Bonds haven't become more or less risky than stocks. Look at it this way, if I were to say that the FTSE will make 15000 by 2025, you would think I was nuts. But in reality, that would only mean that returns will be similar to past returns, say 8% pa. so why all the talk of seeking sanctuary in bonds that have been on a bull run since I was a kid?.
Don't get it. Am I missing something, or, as I see it, were in the midst of the easiest investing decision in our lifetimes.


I think it's a combination of factors...

- New ISA season and people may be looking for somewhere to park cash because equities feel expensive

- Suspicion that the bond bubble may not burst (at least in the near term), not least because institutional investors are obliged to hold them

- Frustrated income seekers trying to spread their risk

As for me, I'm just window shopping - not planning to buy any until they're cheap (if that ever happens).
1 user thanked Sara G for this post.
Jeff Liddiard on 10/04/2017(UTC)
King Lodos
Posted: 09 April 2017 18:02:08(UTC)

Joined: 05/01/2016(UTC)
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srg751;45689 wrote:
I see that the 'Euphoria' topic is seeing quite a bit of attention and that the subject of Bonds is being discussed more than any other time over the past 8 years.
Bonds haven't become more or less risky than stocks. Look at it this way, if I were to say that the FTSE will make 15000 by 2025, you would think I was nuts. But in reality, that would only mean that returns will be similar to past returns, say 8% pa. so why all the talk of seeking sanctuary in bonds that have been on a bull run since I was a kid?.
Don't get it. Am I missing something, or, as I see it, were in the midst of the easiest investing decision in our lifetimes.


Well basically stocks are priced for reflation and growth..

Take US stocks (and assume other Developed Markets are priced correctly relative to risk/cyclicality) on PEs around 25 .. That's a 4% earnings yield.

We're piling into stocks because we expect earnings to grow (rather than fall), and hope we're buying a future earnings yield of >5%. (much higher than government bonds)

So what Investment-Grade Bonds give you is a guarantee (so long as the debt doesn't default) of a higher yield today .. rather than a bet on a higher yield in the future.

Quality perpetual bonds on yields of 6-7% could be equivalent to Quality Stocks on PEs of 14-15 – which might be hard to come by .. It's a possible (marginal) Value opportunity as of right now .. Whether it is in the future comes down to whether Hard economic data surprises on the upside or the downside .. Too much on the downside, and you want to be back in Government Bonds.

Stocks, High Yield, Investment Grade and Treasuries .. There's a case for each depending where you think actual growth will fall on a scale .. We're probably nervous of a 10-15% correction in Stocks if data's weaker than markets have priced in .. Bonds are certainly the contrarian buying opportunity at the moment.
3 users thanked King Lodos for this post.
Guest on 09/04/2017(UTC), Keith Hilton on 09/04/2017(UTC), Jeff Liddiard on 10/04/2017(UTC)
Jon Snow
Posted: 09 April 2017 23:36:55(UTC)

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Sara G on 10/04/2017(UTC)
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