Comment and opinion for retail investors in the UK
(published early!)
Last week, I outlined the main factors that might be relevant to a decision to add some fixed income funds to an asset mix in the current financial and economic climate.
Having a general idea that bonds (the general word for fixed income assets) are once again an interesting asset class is one thing, but that is not enough of a reason to rush out and buy a mix of bond funds.
Having offered a succint(ish) refresher on the basics of fixed income investing in the Digging Deeper section of my Monthly Briefing, I have had some feedback from subscribers that some further guidance on researching fixed income funds, and the logical basis for any decision making, might be welcome.
This is a big subject and one where I have not offered much training even to those taking my intensive training programme, simply because over the last couple of years, it gradually became obvious that there was an increasing risk (now demonstrated) in owning any fixed income assets for the majority of investors, so no point in spending a lot of time trying to grasp the complexities of an asset class that you could safely ignore!
In essence the textbook case for owning bonds to lower risk had been undermined and it was clear that fixed income assets would not offer much protection when the bull market cycle ended.
As we are now well past the end of the bull market and what was anticipated has come to pass, now is the time to get up to speed on this most technical of the major asset blocks.
August was the football commentators’ legendary ‘game of 2 halves’.
The month started with a continuing rise in the value of the major stock markets and even a flurry of meme stock silliness in Bed, Bath and Beyond, exploited ruthlessly by one Ryan Cohen (his actions now being the subject of a class law action, I read).
The month ended with a very negative reaction to the Fed’s hawkish line on interest rates (surely no real surprise?) and markets losing all the gains they made over the last few weeks.
Have the pessimists turned out to be right?
I have written a couple of pieces to introduce this subject and I had promised to comment on some specific funds last week.
However, I thought that the possibility that there was a ‘bottom’ in the market at that time (an idea that is still holding good, but it is early days yet) was a more urgent idea for your attention a week ago, so the global dividend/equity income fund examples got deferred.
For some time, maybe over a year now, I have been telling anyone interested that owning fixed income funds was not going to be defensive in the near term. The classical non-correlation with equities was not going to work.
This was important to owners of the passive multi-asset funds that ONLY use fixed income assets in a set mix as volatility controls. The Vanguard LifeStrategy funds would be a good example.