Fixed Income  

Sector analysis: UK Gilts

Improvements in the domestic economy could have an impact on the UK gilts market. With output expanding at 0.8 per cent in the third quarter and many believing the drop in gross domestic product from pre-crisis levels will stabilise next year, this does not make for a promising forecast for gilts.

This would somewhat imply that gilts are currently performing well, but a look at the UK Gilts sector shows that is not the case. There are 28 funds in this IMA sector, none of which returned an initial investment of £1,000 over the past year. Even the best five-year figures are a little uninspiring, with £1,307 back on an initial £1,000 investment to Newton Long Gilt Instl Acc.

Over a shorter time period, it is the M&G Gilt & Fixed Interest Income A Inc that performs the best, although that is relative. A return of £967 on £1,000 is not going to be what any investor is looking for, even if it is the best in its sector.

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Right at the bottom of the table is Henderson Instl Long Dated-Gilt, which returned a fairly disappointing £921 over the past year and £1,249 over five years. The benchmark is the Citi UK GBI USD, and only one fund outperformed this, by just £1. Essentially, when a sector average is not returning an initial investment over the past year, it is not going to be a particularly attractive prospect for investors.

Top And Bottom UK Gilt Funds Over One Year Based On An Initial £1,000 Investment
Top 5
M&G Gilt & Fixed Interest Income A Inc£967
St James’s Place Gilts L Acc£965
Allianz Gilt Yield A£963
Vanguard U.K. Government Bd Idx GBP Acc£961
SLTM UK Govt Bd Acc£960
Bottom 5
Henderson Instl Long Dated-Gilt A£921
AXA Sterling Long Gilt R Gross Acc£921
Vanguard U.K. Long Dur Gilt Idx Acc£937
Schroder Instl Long Dated Sterling Bd I£940
Newton Long Gilt Instl Acc£945
Sector Average£959
Data one year to 2 December 2013. Source: Morningstar. Copyright: Money Management.