Introducing new ways to save with bonds and gilts Killik & Co

01 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.

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.

Mateusz Malek

Partner, Head of Bond Research

Introducing our new gilt-based investment solution

Our new gilt-based investment solution provides managed and advised clients with access to some of the highest quality bonds available in the sterling market, including those usually not available to private investors.

This approach is designed to suit investors wanting to earn a competitive but predictable level of return, perhaps because they need easy access to their funds over the short-term or want money available for a specific foreseeable call on capital further out. It may also meet the needs of higher and additional rate taxpayers looking for a tax-efficient way to invest, anyone looking to diversify an existing portfolio, or more cautious longer-term investors with a preference for a low volatility investment solution.

The presence of a dedicated, specialist team opens up access to parts of the market that are typically not available to private investors (e.g. UK Treasury Bills, supranational bonds and those issued by government guaranteed organisations) and should help to enhance returns. We also pride ourselves on efficient trade execution, as well as our ability to select the most tax-efficient bonds. Finally, the Portfolio Manager has the ability to sell gilts at any time during the pre-agreed investment horizon, for example shortly prior to redemption in order to reinvest the proceeds into the next attractive opportunity.

We would guide clients towards a minimum investment of £30,000.

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:

“Bonds’ higher predictability of returns makes them less volatile than many other asset classes, and because of this lower volatility, bonds tend to produce strong risk-adjusted returns. Additionally, corporate bonds can add diversification benefits to a portfolio consisting of other asset classes, including equities.”

To learn more about our UK Fixed Income Strategy, watch this video

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.