October 2023
Bonds and gilts are becoming an increasingly attractive way to save, and our new services provide clients with access to these markets.
As an independently owned partnership, making the benefits of investing accessible to all has been a guiding principle for many of the important decisions we have made over the years. From being one of the first Private Client Brokers to offer SIPPs to developing our digital-only investing solution, Silo, we are passionate about helping our clients to grow their wealth in smart and sustainable ways.
We also believe in encouraging clients to manage their finances responsibly and use a three-pot approach to allocation to help manage investment risk and provide greater confidence in growing savings over the long term.
One of the three pots we use for asset allocation is identifying any foreseeable calls on capital (FCC) required for short-term financial goals like purchasing a new home or funding private education, which may impact our ability to meet lifetime savings goals.
While it is sensible to set aside these funds to ensure they can be easily accessed when required, holding onto cash using a standard savings account or an Individual Savings Account typically delivers a low rate of interest compared to other investment instruments.
We are therefore excited to announce that we have launched a new gilt-based investment solution, to complement our already established UK Fixed Income Strategy.
Why bonds and gilts?
Previously, we may have hesitated to recommend government bonds (gilts) due to the very low yields they offered. However, as rates have increased, government bonds now offer the potential to generate satisfactory level of return without taking as much risk as investing in other asset classes. Additionally, gilts are one of the most tax-efficient ways you can save and invest today. With no CGT due on any gains made, they offer a significant tax advantage over many investments. Gilts may also be an attractive investment proposition for more cautious investors, as they are fully backed by the UK government.
The rise in the UK Bank of England Base Rate from just 0.1% in December 2021 to 5.25% in August 2023 has created great opportunities in some low coupon gilts, which are now trading at significant discounts to their maturity values. This provides a compelling opportunity, particularly for higher and additional rate taxpayers, to benefit from the tax-free capital uplift of a gilt on maturity, in addition to the interest paid over the rest of the term. Given the return is largely capital uplift, which is tax free, the net yield is much higher than for comparable investments. The table below provides an example of the type of return an investor could expect when comparing the total return generated on a gilt to a cash equivalent.
This data reflects the price and projected performance of the named gilt on 12th September 2023 and illustrates the potential combined return through the Net Redemption Yield and Cash Equivalent Yield. The actual figures achieved will depend on individual circumstances.
Introducing our new gilt-based investment solution
How is this different to our UK Fixed Income Strategy?
This new investment solution mainly focuses on portfolios of gilts (government bonds), while our established UK Fixed Income Strategy focuses on corporate bonds.
Short-dated gilts are a lower-risk asset class, as they tend to experience less volatility than corporate bonds. However, the potential for achieving a more attractive returns tends to be higher in corporate bonds.
According to Mateusz Malek, Head of Bonds Research:
To learn more about our UK Fixed Income Strategy, watch this video
Buy into bonds and gilts
Our new gilt-based investment solution has been developed to take advantage of these opportunities and to offer investors an attractive way to save, as a complement to our already established UK Fixed Income Strategy.
We believe that now is an attractive time to buy into bonds and gilts, with significant discounts making them an attractive option for meeting short-term financial goals, together with their suitability as a lower-risk asset for achieving greater diversification within your portfolio*.
To learn more about our new services for investing in gilts and bonds, please speak to an Adviser.
*As is the nature with all investing, your capital is at risk and you may not receive back the same amount as you put in when you choose to cash out your savings.
