My Fixed Income Portfolio

I was looking for a few opinions on the bond ETF’s that I have decided to purchase for the fixed income portion of my portfolio. The equity portion has long since been sorted and the amount I intended to put into bonds has been sitting in cash for a while.

Ideally I would be purchasing some CHF government bonds, but I would rather have cash and invest in equity than this option at the moment (based on the returns vs my perceived risk). I’m not comfortable investing more money into equity with the high valuations there are at the moment, I have a pretty good exposure anyway and with my investment portfolio my intention was always a 80/20 equity/bond split which I will achieve once I sort the fixed income portion. I want to have the additional asset class of fixed income in my portfolio.

iShares £ Corp Bond 0-5yr UCITS ETF (IE00B5L65R35 - IS15)
Being from the UK I do have some £/GBP. I am slowly transferring this to CHF as I’m intending on staying in Switzerland for the rest of my life. In the meantime I can invest in this fund, and as I hold the GBP currency already anyway, effectively no change in my currency effect. Didn’t want the interest rate risk of a longer duration fund.

US92189F4946 - EMLC - VanEck Vectors J.P. Morgan EM Local Currency Bond ETF
I am keen to have some level of risk/return in my fixed income portfolio. There is no point in having a USD hedged EM fund so went for this one with the local currencies. I see the etf is also quoted in CHF but the fund seems too small so went for the US exchange version…anyone have any information on the CHF equivalent, would this be my better option (the returns were lower - was this purely the currency impact?)?

BND - Vanguard Total Bond Market ETF
Ideally every government and corporation would issue debt in CHF, as they don’t, I opted for this fund. I realise that I open myself up to the currency impact, CHF vs USD. Seemed like a good core ETF for my portfolio though. Covering me in many future situations in the market and I am not sure how to get around the currency impact - if there is something similar in CHF I’m listening!

Do I have any glaring errors in my thought process? I’m I making any stupid mistakes (like I have in the past by buying negative yield CHF government bonds!)? Tax / execution perspective/errors?

Thanks for your help.

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If the goal is to minimise risk I am unconvinced about emerging market and corporate bonds.

I am personally inclined to stick to “developed world” government bonds for this. Mitigating the currency risk by spreading across multiple countries/currencies. The number of ETFs that cover that sector seems surprisingly small. The only reasonable ones I have found are:

IGLO IE00B3F81K65 iShares Global Govt Bond UCITS ETF
XG7S LU0908508731 Global Government Bond UCITS ETF (DR) 5C
IAAA IE00B87G8S03 iShares Global AAA-AA Govt Bond UCITS ETF

They claim to track the following indices respectively:

Citi Group-of-Seven (G7) Index
Citi World Government Bond Index – Developed Markets
Bloomberg Barclays Global Government AAA-AA Capped Bond (couldn’t find much information about this one so it’s a bit suspicious)

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Thanks Krunch for your responses, ideas and alternative ETF suggestions.

I wouldn’t say that the goal is to only minimise risk. I would say the goal for me is to gain exposure to a different asset class, kinda adding a few more different eggs to my basket. I’m looking for what I feel is the right risk / return profile. Definitely I wanted a bit of asset protection though. I was hoping I would get that a little from BND, it seemed to cope relatively well since inception in 2007 (just didn’t like the currency impact I would face with it being USD). The GBP corporate and emerging markets etf choices were definitely made with the mind that that they could act similarly to equity markets, particular the EM choice. The EM fund spreading the currency risk across many currencies due to its design.

I would probably put half / the majority of my allocation in BND and share the rest between the other 2 funds if I go with the original ideas.

I have checked out the 3 other funds you mentioned, I was actually looking at IGLO before till I saw the low yield to maturity against the duration of the fund. I just feel I would rather hold the cash than invest in these funds at the moment. Yet I don’t like holding so much cash as a % of my current portfolio.

If I go with my original idea I will still have a reasonable level of cash in order to rebalance / buy any at any crash in the equity market in the future, I’m not yet fully invested (although I am happy with where I am right now).

Thanks for your help - it was nice to look through a few alternatives as a comparison to my choices.

Hi everyone, i wanted to open a similar thread but as I found this one I decided to loop in my questions.

Im trying to build an all weather portfolio following Ray Dalio concepts but Im struggling to decide how to build the bonds part.

I have three main questions/doubts.

1.Long term bonds. Dalio strategy is to own around 40% long term bonds. However, how is that not suicide with such low interest rates ? I know you shouldn’t time the market but Im struggling to understand how buying long term bonds now could work out… Maybe buying only for emergent markets with higher interest rates ??

  1. Short terms bonds. Dalio strategy is to own around 15%. This makes more sense than long terms in the current interest environment but as swiss bonds are currently a no-go I have doubts on the currency risk. Should I buy hedged ETFs ? I plan to retire in Switzerland so this is important to me. Specially with all the noise around USD falling… (i have already read the threads about hedging but Im still unclear on what is better…)

  2. ETFs or not ? I heard some criticism that says that as ETF rebalance by buying high and selling low it shouldn’t be the best choice. Any thoughts on this ?

Thanks to everyone in advance !!

Aitor

Due to their lower volatility, bonds tend to be over-allocated in such strategies and you should be extra cautious in the current monetary environment. More on bonds within All Weather and Risk Parity under [Ray Dalio’s balanced portfolio approach – Guide Finances]

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