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Post by Fletchsmile on Feb 14, 2019 12:13:26 GMT 7
Reasonable article on inflation linked bonds. Also lists a few of the index funds that could be used to buy them, such as ishares, L&G.
One thing that sticks in my mind whenever I look at them is how good 2016 was for ILGs. 2016 was rather unique because of Brexit, but strip that out of performance though and it's a different picture.
The hidden risk in inflation-linked bonds
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Post by Fletchsmile on Feb 14, 2019 12:14:52 GMT 7
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Post by Fletchsmile on Feb 14, 2019 12:19:44 GMT 7
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AyG
Crazy Mango Extraordinaire
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Post by AyG on Feb 14, 2019 14:15:18 GMT 7
Vanguard also run a reasonably priced index fund with 0.15% p.a. charge That's actually pretty steep - double what Lyxor's offering [LU1407893301] charges at 0.07%. |
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AyG
Crazy Mango Extraordinaire
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Post by AyG on Feb 14, 2019 14:23:58 GMT 7
One thing that sticks in my mind whenever I look at them is how good 2016 was for ILGs. 2016 was rather unique because of Brexit, but strip that out of performance though and it's a different picture. Of course, the last few years have had unnaturally low interest rates and consequently low inflation. It's my belief that eventually governments will allow interest rates to rise and inflation to increase to devalue the mountain of debt they now owe. Then we'll see these bonds come into their own. Unfortunately, I've held that view for a number of years now, and it hasn't happened yet. I have to steel myself to avoid weakening in my conviction and selling. Incidentally, at the moment there's something of a shadow over inflation linked bonds, with the government being urged to switch from using RPI to CPI to measure inflation. If this were to go ahead it would have an immediate impact upon the capital value of such bonds, including the redemption amount, and would reduce coupon payments. I'm rather hoping the government acts morally and doesn't default on its obligations to existing bond holders. For the time being I would favour TIPS for someone whose base currency isn't Sterling. www.reuters.com/article/us-britain-inflation/uk-lawmakers-ramp-up-call-to-fix-flawed-inflation-measure-idUSKCN1Q1112 |
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Post by Fletchsmile on Feb 14, 2019 15:19:25 GMT 7
Vanguard also run a reasonably priced index fund with 0.15% p.a. charge That's actually pretty steep - double what Lyxor's offering [LU1407893301] charges at 0.07%. 8 b.p diff making it steep  I was thinking more relative to the ones charging 30bp+
Worth noting:
- Lyxor is an ETF so would attract dealing costs on both buying/ selling. That could easily eat into the diff. Vanguard no initial charges
- As an ETF Lyxor has a bid offer spread - I just had a look at that and it's currently around 0.15%. That itself is equivalent to 2 years difference. Vanguard is single priced. No bid-offer spread
{ BTW Would also want the LSE version (GILI:LN) in GBP rather than the EUR version (GILI:FP) to avoid currency exchange costs. }
- Luxor seems a very small ETF of only EUR 35mn or GBP 31mn. You have to wonder about the liquidity on that. I could imagine that 0.15% bid-offer spread widening in unpopular times. Not to mention the risk of there not being enough of a market to sell at a decent price if you're unlucky on timing. With Vanguard you've no worries about liquidity and you'll always deal based on NAV rather than market whims
Myself I'd probably go for the L&G version which is 0.10 % after discounts/ rebates. Cheaper than Vanguard, but without the ETF drawbacks/ uncertainties
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I was thinking more relative to the ones charging 30bp+
