Bonds BONDS CAN PROVIDE SECURITY. Member's view of: Cable & Wireless UK pension arrangements

Transcription

1 Bonds BONDS CAN PROVIDE SECURITY. Bonds are effectively loans to governments or companies which when issued by the UK Government are referred to as gilts. They either pay a fixed rate of interest or a rate of interest linked to inflation (indexlinked gilts). Bonds have quite different characteristics to equities. They offer greater security because they are less volatile. Normally a reduced risk means a lower return and bond returns have been lower than equity returns over the long-term. On retirement you will probably want to buy an annuity. Annuity prices tend to move in line with interest rates. Retiring on the right or the wrong day can therefore make a significant difference to your long term retirement income. Although there is no guarantee of full protection from rises in annuity prices, investing in the same way as annuity providers as you get closer to retirement, that is investing in bonds, can provide some protection.

2 Fund Summary The aims to provide a broadly based exposure to long-dated gilts, index-linked gilts and corporate bonds with the gilt funds tracking the FTSE A Government (Over 15 Year) and the Index-Linked (Over 5 Year) indices respectively. The Fund invests 50% in Over 5 Year Index-Linked gilts, 25% in Over 15 Year gilts, and 25% in AAA Fixed Interest Over 15 Year bonds. Different investment classes have different levels of volatility and risk which means that the levels of return vary greatly. The suitability of one investment class over another therefore changes throughout your working life. This Fund is likely to be of specific interest to members who are nearing their pension date. Bonds offer greater security than equities because their price and therefore their value tends to be less volatile. However, although bond prices are less volatile their capital value is linked to interest rates and will fall when interest rates are rising and rise when interest rates fall. Corporate bonds also carry some additional investment risk due to the possibility of the issuer of the bond defaulting on the loan or by factors, such as corporate events and market perception. Generally, reduced risk means a lower return and bond returns have historically been lower than equity returns over the long-term. Mid to long-term investment horizons If you have a mid to long-term investment horizon you will usually be aiming to maximise growth in your pension account and so will probably be investing mainly in equities. You may wish to diversify your portfolio by adding some investment in corporate bonds. Though more volatile, equities historically have provided higher long-term returns. As you near your pension date However, as you near your pension date, you may want to reduce the volatility of the value of your pension account. You can do this by moving part or all of your pension account out of equities and into bonds. You will also be thinking about buying an annuity and you may want to ensure that the value of your pension account starts to move in-line with the cost of buying an annuity. Annuity providers use bonds to back their annuities. Adopting the same investment approach, as annuity providers, that is investing in bonds, will therefore provide some protection against changes in annuity prices as you get near to your pension date. Different investment classes have different risk and return characteristics. Equities for example have given higher levels of return in the long term but are subject to considerable volatility in the short term. The suitability of one investment class over another changes throughout your working life as your tolerance to volatility in capital values changes. Bonds offer greater security than equities because their price and therefore their value tends to be less volatile. However, although bond prices are less volatile their capital value is linked to interest rates and will fall when interest rates are rising and rise when interest rates fall. Corporate bonds also carry some additional investment risk due to the possibility of the issuer

3 of the bond defaulting on the loan or by factors, such as corporate events and market perception. Generally, reduced risk means a lower return and bond returns have historically been lower than equity returns over the long-term. Mid to long-term investment horizons If you have a mid to long-term investment horizon you will usually be aiming to maximise growth in your pension account and so will probably be investing mainly in equities. As you near your pension date However, as you near your pension date, you may want to reduce the volatility of the value of your pension account. You can do this by moving part or all of your pension account out of equities and into bonds. You will also be thinking about buying an annuity and you may want to ensure that the value of your pension account starts to move in-line with the cost of buying an annuity. Annuity providers use bonds to back their annuities. Adopting the same investment approach as annuity providers, that is investing in bonds, will therefore provide some protection against changes in annuity prices as you get near to your pension date.

4 Fund Performance over 12 months to 30 September Select new date range: 30 September 2008 to: 30 September 2013 For weekly dealt funds data provided uses next available unit price, or previous price if no later one exists. Fund Performance Per Annum to 30 September 2013

5 Performance figures for a period greater than 12 months are annualised. The Fund performance for your Scheme may be marginally lower than that shown due to the impact of your Scheme's investment charges. Please refer to your Scheme literature for further details on how your Scheme administers investment charges. The Fund's objective can be found in the Fund Summary. Past performance is not a guide to the future and the value of investments can go down as well as up. Exchange rate variations can cause the value of overseas investments to increase and decrease. Investors may not recoup the value of their original investment. The Fund Performance has been calculated on a mid-market to mid-market unit price basis. The midmarket price excludes the costs of buying and selling units in the Fund and lies between the Bid and Offer prices shown on the Funds Price History page of this site. It should be noted that the Fund Performance will only have been achieved in respect of an investment held at the starting date through to the end date of the chart. The performance of any monies invested during the period will depend on the starting date of that particular investment. The variations in unit prices over the period can be seen by clicking on the chart button on the Funds Price History page.

6 Fund Asset Distribution as at 01 October 2013 Dealing Point: 30 September 2013 Comparison Date: 30 September 2013 Sector % at Mid AF - Over 15y Gilts Index BH - AAA Fixed Int Over 15 Year AP - Over 5y Index-Linked Gilts Total Asset distribution is calculated using the Mid price which may be different to the Dealing price.

7 Fund Price History from 10 August 2013 to 08 November 2013 Select new date range: 10 August 2013 to: 08 November 2013 For weekly dealt funds data provided uses next available unit price, or previous price if no later one exists. Weekly Close Price Dealing Point Series Bid (pence) Offer (pence) 08 Nov Nov Oct Oct Oct Oct Sep Sep Sep Sep Aug Aug Prices are provided for information only and should not be construed as a recommendation or an offer to sell or buy.