A fully flexible way to invest
3 minute read
The concept of tracker funds to follow share markets is widely accepted by investors around the world. But the concept also exists in bond markets. Tracker funds exist that give investors broad exposure to some of the world’s bond markets, and are a useful way to add diversification to your investment portfolio.
Who's it for? All investors
Investors who understand the importance of diversification, understand the need to invest in bond funds alongside those funds that invest in shares. This is because shares and bonds don’t always move in the same direction, so investing in both markets could therefore lead to a smoother overall performance of your investment portfolio.
There is often a lot written about individual equity funds, to help investors understand where to start, but it can be quite different when it comes to bonds. The hardest decision is to decide where to start. A tracker fund (also known as a passive fund) could be the quickest shortcut to investing in bonds for the first time.
The iShares Corporate Bond Index Fund invests in bonds issued by companies and organisations from around the world. What they all have in common is that the bonds they issue are all denominated in pound sterling. This is known as a ‘sterling’ bond fund and can invest in the bonds issued by any company around the world, which have been issued in sterling. As many companies issue their bonds in sterling even if they’re not a UK company, as a result, the fund has a global reach, rather than just having a focus on the UK.
Bonds are effectively loans to companies and organisations (such as governments and charities). And, just like when it comes to loans, each bond is assessed and given a rating as to how probable it is that the company will pay you the money back.
Independent agencies exist to rate each bond and publish a profile of the entire market to help fund managers understand where they are investing. Each bond is given a rating from ‘extremely strong’ to ‘highly vulnerable’. The iShares Corporate Bond Index Fund only invests in the part of the market which is rated as strong. The fund does not invest in the lower quality end of the market.
The iShares Corporate Bond Index Fund offers a shortcut to investing in bonds for the first time. At the end of 2021, the fund was invested in just over 1,100 individual bonds, which represents a spread of very different companies and organisations from lots of different sectors and from many countries around the world. Being a tracker fund, it’s operated automatically rather than by a fund manager, which dramatically reduces its running costs, though that does mean it can never outperform the market.
If you are looking to gain general exposure to the sterling bond market, the iShares Corporate Bond Index Fund could be worth looking at. If passive funds appeal to you, you may wish to look at the tracker funds in the Barclays Funds List. We have selected 12 tracker funds which allow you to track the performance of different investment sectors at a low cost. Find out more information on these funds.
The tracker funds on our Funds List are selected solely on cost – those featured are simply the cheapest available tracker fund we offer in each sector where a relevant product is available. The funds included in this selection are reviewed every six months, in June and December.
Correct at the time of publishing.
To diversify your investment, you may like to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These Barclays multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.
Past performance of the fund and its manager are not a reliable indicator of their future performance.
We don’t offer personal investment advice so if you’re unsure you should seek that independently.
Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.
These are our current opinions but the future, as ever, is uncertain and outcomes may differ.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.
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