Its Not Harry

Comment and opinion for retail investors in the UK

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Midweek Musings (fixed income investing, part 5)

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The remarkable political events of the last few days mean that the yields on UK Government debt (gilts) have been up and down like a fiddler’s elbow and that will have fed turmoil into fixed income markets in general. The iShares Core £ Corporate Bond share (a useful benchmark) is unsurprsingly down a scary amount year to date but has been up and down like a yo-yo since late September.

It remains my opinion that although there will be great opportunities to invest in fixed income assets for those who need something other than equities in their portfolios, and such opportunities have not existed for a long time, it would be a brave invesor who went into the market right at this moment.

Nonetheless, now is an ideal term to brush up our knowledge of the investment options.

I already covered the requirements of an investor wanting a slightly spicier alterenative to cash on deposit and now I want to address the requirements of investors who are looking for an asset class diversifier, or even a tactical play to make a ‘quick buck’.

Narrowing the options

A look at the list of investment sectors or peer groups published by the Investment Association will reveal a bewildering range of fixed income funds from UK Gilts to Global Emerging Market Bond (local currency). Someone with plenty of experience could mix and match funds from various peer groups and put together a package of funds with varying characteristics to diversify risk within the fixed income asset class.

Or you could choose a passive index tracker fund, like the Vanguard Lifestrategy series with a high bond component (which in fact true for most of the options) and you will get a fixed exposure to a variety of fixed income assets. For example the Lifestrategy 40 fund includes, among others, a large holding in global bonds, some UK governmant bonds (gilts) and also UK Index Linked Gilts. The Fixed Income style box from Morningstar records a high sensitivity to interest rate changes and medium credit quality. The fund has lost 15% so far this year (compare with a fund I review later) in Sterling terms, so hardly the lower risk option one might have thought from the traditional viewpoint or even the marketing material.

Picking bond funds for the novice is a nightmare, right? Potentially so, I suggest. But I can help!

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Watching Brief – October 2022

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Pottering About

Basics about bases

My slightly later than usual start to writing this piece has followed a brief recovery spurt in global equity markets, indicating that if there is even the merest hint of a slow down and reversal of the hawkish attitude of the US Federal Reserve, markets are poised and waiting to inflect to a positive or even bull run after a gloomy period now running to almost a year.

The ending of the 12 months since the current bear market got under way will see all the short term data look a bit different because of what is called ‘base effects’.   Let me explain.

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Midweek musings (fixed income investing, part 4)

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This post is early because I am away for a few days birdwatching the mass migrations on the edge of the Baltic Sea for the rest of this week. My monthly briefing will conversely be late, but given the political events in the UK, waiting a few days to see what further fallout there is from the special fiscal operation may be wise anyway.

In the post called ‘Getting your Fix, part two’, I proposed 3 possible motives for considering fixed income investments now the market has inflected and all the factors I outlined in part one, plus the recent Chancellor’s proposals in the UK, are in play. This week, I want to see how you would approach research into the market if your objective was the first one I suggested: earning a return on money that would otherwise be in cash.

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Midweek Musings – Spoilt for Choice (fixed income basics, part 3)

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I started this series of educational posts by outlining current factors that make fixed income assets a very different proposition to what they were a year or so ago. Since I did that, some factors have been amplified.

The UK markets had been waiting to see what a new leader would do to help people with energy bills and was nervous about the likely impact on the public finances but almost everyone was astonished (even those who approve of the return to Reagonomics) by the special fiscal operation (or Watership Down as some have called it) announced at the end of last week. The impact on fixed income markets has been instant and dramatic with yields rising to levels not since before 2008.

Since I started writing this, the Bank of England has announced that it is reversing its plan to start quantative tightening and going back to money printing. I assume this means that that want to clamp down on inflation by printing money – a novel new economic theory, not exactly as imagined by Milton Friedman and associates!

A decline in the value of Sterling may still turn into a currency crisis and such crises tend to run out of control until they hit the buffers. All this is happening as I write so I have no intention of offering guidance on what to buy and when, or even to say if the fixed income asset class is yet attractively priced (it certainly will be before too long, I guess).

What this week’s post will do is explain how the fixed income market is divided up for access by retail investors. This information can then be matched up with your objective to see what funds universe might meet your needs.

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Midweek Musings – ‘gilty’ feelings, part one

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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.

Back to class – it’s September!

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.

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Watching Brief – September 2022

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Pottering About

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? 

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