Want to Create a Bond Portfolio

Hello

Hope You Are All Well.

I have been reading up on corporate bonds and other fixed interest securities with the intention of investing a proportion of my diversified portfolio in Bonds. I wish to receive a return of 8% - 10% while keeping an eye on risk. I have constructed the following portfolio which will represent 25% of my entire holdings of Cash, Dividend Aristocrats, P2P Lending and Index Funds. Please can you offer me some Constructive Criticism and advice as this is the first time I'm embarking on Bond Investing for the LONG RUN. My goal is INCOME.

(1) Barclays Bank Plc 14 Coupon Price 133.801 Yield 10.573% (Does Not Have a Maturity Date)
(2) Investec 9.625 Coupon Price 110.507 Yield 7.813% (Expires 2022)
(3) Old Mutual 8 Coupon Price 107.157 Yield 6.743% (Expires 2021)
(4) (PIBs) Co-Oerative Bank 13% Perp. Sub Bonds Price 105

If anyone has any suggestions to add to the portfolio or removal from the portfolio I would be grateful.

Thank YOU in advance

Comments

  • The Investec 9.625% 2022 bond got a brief, positive mention in Bond of the Week for 31 Jan - http://www.fixedincomeinvestor.co.uk/x/analysis.html?type=bond-of-the-week&cat=analysis-comment&y=2014&aid=1226 . I started to look into it, but a comment on the thread at http://www.fixedincomeinvestor.co.uk/x/forum.html#/discussion/225/bond-of-the-week-requests indicated that it had a minimum purchase of £100,000 nominal value, which would cost over £110,000 at current prices. That is too large for a single purchase in my portfolio so I didn't explore it further. The Old Mutual 2021 bond also got a mention in the same Bond of the Week article, but I haven't looked at it or the others you list.

    If the £100k minimum is too much for you too, and given your target return, have you considered preference shares ?
  • Asking for a return of 8% - 10% is likely to create a risky portfolio, sometimes a lower coupon bonds can create "capital gain opportunities".
    If the total investment is say £100K suggest minimum of 10 investments, if greater than 100K, increase the no of investments.
    Take the opportunity of new Bonds when available & slowly build up the portfolio
  • A return of 8-10% is very high for a bond portfolio (or even a share portfolio) and will be hard to achieve without taking significant risk. Bear in mind 10 year government gilts have a yield of about 2.5% and FTSE 100 companies around about 4%. You have picked pretty much the four highest yielding bonds you could find which by definition must be risky - there has to be a reason why these bonds yield more than others. They are also all financials which doesn't give any diversification. As the guys above have said they may also have high minimum investments and could be hard to trade. I'm guessing not many retail investors hold them which is why we are struggling to help you.
  • Agree with all the above comments. A target of 5-7% would be a more realistic target.
    A few recently launched ones are trading fairly near par
    e.g.
    PAG2 PARAGON GROUP OF COMPANIES PLC 6.125% STG DEN NTS 30/01/22
    PMO1 PREMIER OIL PLC STG DEN 5% NTS 11/12/20

    Read those bond of the week articles on here and some of the comments on the discussion threads on this forum.
  • @ JGH - Thanks for the heads up
    @ ShaunM - Thanks for the advice, makes sense
    @ Shotgun - The paragon bond looks interesting, what is the minimum investment level.

    I want to start with £10,000 spread across a few bonds.
  • Minimum Investment for new bonds is generally 2K
    For 10K portfolio I would split it either into 4 or 5 pots.
    For existing issues you can go smaller, but then dealing charges start taking too much of the total return, so best keep above 2K.
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