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Q&A: Should I invest in bonds via tracker funds?

We answer a reader's question on how to get broad exposure to bonds

Investors Chronicle reader Richard Cory asks: "When Chris Dillow writes about equity index tracker funds in the IC Portfolio Clinic, he recommends thinking like an average investor and holding a FTSE World index tracker. How about bond holdings? If held via a bond fund, should they be held in a tracker fund holding the equivalent of a FTSE World index tracker?"

Chris Dillow, the Investors Chronicle's economist says:

If you are an average investor, the answer is yes: a bond tracker fund is best.

However, in this context you might not be an average investor, in at least two ways:

1. You are less concerned with day-to-day fluctuations in share prices, and more concerned to have certainty about future wealth. If so, you'd be better with a bond held to maturity, as this gives a certain return in a way a bond funds does not.

2. You might be concerned about your wealth at a particular date - eg when your kids go to university or when you retire. If so, you might want a bond that matures on that date.


Moira O'Neill, personal finance editor at Investors Chronicle says:

Consider using two passive products from our Top 50 ETFs list of low-cost exchange traded funds as bond fund building blocks for your portfolio.

db x-trackers II Global Sovereign UCITS ETF 2D GBP HEDGED (XGSG) aims to track the performance of the Deutsche Bank Global Investment Grade Government Index, which represents the majority of the world sovereign debt market. The Index currently covers sovereign debt from 20 developed countries. It replicates the index indirectly using a swap. Its total expense ratio (TER) is 0.25 per cent.

iShares Global Corporate Bond UCITS ETF (CRPS) aims to track the performance of the Barclays Global Aggregate Corporate Bond Index which offers exposure to investment grade corporate fixed rate bonds issued by corporations in emerging and developed markets worldwide, with a minimum maturity of at least 1 year. The ETF invests in physical index securities and has a TER of 0.20 per cent.

Investors who are not dead set on passives could try actively managed Jupiter Strategic Bond Fund (GB00B2RBCS16) or Henderson Strategic Bond Fund (GB0007495293), both members of the IC Top 100 Funds.