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AJ Bell Youinvest Fundamentals - Vanguard UK Inflation-Linked Gilt Index GBP A Gross (Acc) - YouTube
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welcome to the latest edition of
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fundamentals this time around I'm going
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to look at a passively managed member of
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our list of seventy two favorite funds
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namely Vanguard UK inflation-linked gilt
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index fund
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now Vanguard is one of the largest
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investment companies in the world with a
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long history of managing passive
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strategies in this fund is a tracker
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there's no food manager here just a
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program that ensures the fund provides
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the performance of the underlying assets
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as closely as possible - it's running
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costs this fund tracks the Barclays UK
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government index-linked float adjusted
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bond index it focuses on bonds that
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trade freely in the market and come with
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maturities greater than one year most
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importantly as the name suggests the
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bonds are index-linked known as linkers
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these traded debt instruments are both
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their principal the amount you get back
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when the bonds mature and their coupons
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the interest rate you get during the
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life of the bonds they're both adjusted
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according to inflation more specifically
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they're adjusted to the retail price
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index or RPI inflation not the more
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popular or more widely known Consumer
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Price Index or CPI the good news
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therefore is the value of the coupons
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you get increases if inflation increases
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the bad news therefore is a drop in the
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rate of inflation or even deflation
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could see the value of the gilts fall
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and their coupons diminish this chart
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here shows that the UK is only seen
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prices fall according to the RPI just
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once since records began in 1949 and
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that was in 2009 right at the end of the
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financial crisis over the last sixty
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eight years RPI inflation in the UK is
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averaged five point four percent and
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since 1990s average three point one the
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tracker provides exposure to a basket of
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28 different UK government index-linked
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gilts
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as we can see here the vast majorities
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of the linkers are what a couponer
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between zero and four percent although
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they yield to maturity will potentially
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differ from that depending on the
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performance the underlying bonds remain
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that just like his share the higher the
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bond price goes the lower they yield on
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a bond and vice versa
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the linkers are all double-a rated as
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that's the UK government's credit rating
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while the average maturity of the bonds
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in the portfolio is long this graphic
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shows the range of maturity by years and
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the effective maturities nearly 24 years
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while effective duration is just over 22
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Vanguard is a massive fund manager and
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its economies of scale means that it can
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run its funds cost-effectively that's
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reflected in the lowly nought point one
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five percent ongoing charge for this
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tracker fund note that we are talking
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about the funds accumulation units so
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it'll automatically reinvest any coupons
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from the underlying gilts for you
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Vanguard UK inflation-linked gilt index
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fund is eligible for sips Isis and
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dating accounts and the initial minimum
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investment is just one share as a final
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point
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please know that the units in the fund
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currently sell for around one hundred
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and eighty four pounds each so those are
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the mechanics the question to address
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next is why could investors consider
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this fund for portfolio inclusion today
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the major reason is clearly inflation if
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you think inflation is coming then
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index-linked gilts are one way to
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protect yourself and the value of your
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money as the coupons on the gilts and
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therefore the fund will rise in line
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with ipi inflation and as we can see
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here inflation has crept higher over the
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past twelve months or so if you think
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were really on the verge of a globally
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synchronized recovery that low
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unemployment's about just back wage
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growth banks rochester lending and that
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central banks have left were interest
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rates too low for too long
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then this may be one way to protect your
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money in its real inflation adjusted
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value but that's not to say that the
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Vanguard UK inflation linked gilt index
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fund will suit every investor after all
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you may take the view that inflation is
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not going to gallop higher or even stay
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elevated you may feel that weakness in
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the pound and strength in oil explains
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2017 increase in inflation which Miss
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Munez see therefore is a temporary surge
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rather than something more profound
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after all global indebtedness weak
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my graphics in the West which means
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fewer people of working age and more of
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pensionable age and the internet are all
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powerful deflationary forces if this is
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the angle that you're taking then you
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may feel index-linked gilts and a tract
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of film that follows them is an
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insurance policy you may not need
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especially as this fund has already done
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well so if inflation eases or even gives
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way to deflation no matter how unlikely
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that may seem now then the underlying
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gilts and therefore the tracker could do
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less well or even fall in value what
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this does go to show is that investors
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must therefore do their research on
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Vanguard UK inflation-linked gilt index
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fund to make sure that it fits with
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their overall strategy target returns
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time horizon and appetite for risk
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before they put any capital to work
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thank you for watching and I look
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forward to seeing you next time
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you
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