Tuesday 22 March 2011

Portfolio Buy: ETF iShares Markit iBoxx £ Corporate Bond ex-Financials (ISXF) - UK

As a way of documenting the DIY Income Investor approach I am posting information about my new investment decisions - we will then track the portfolio of new purchases so that you can see how they work out over time.

These are real purchases - this is not a 'fantasy' portfolio.

All my purchases will be on the London Stock Exchange, using a Self-Select Stocks & Shares ISA.

This purchase is an Exchange Traded Fund (ETF) with the rather complicated name iShares Markit iBoxx £ Corporate Bond ex-Financials  with the stock market ticker symbol ISXF.

 You may recall that ETFs are Level 4 of the Income Pyramid. ETFs are a collective investment - the fund is based on a collection of assets of a similar type, so a major problem with one particular company or asset should not cause a catastrophic loss. The downside is that returns are lower than you might make with the 'best' example of that asset class - but then that 'best' example might go bust!

ETFs are transparent, cost-efficient, 'liquid' vehicles that trade on stock exchanges like normal securities - so they are easy to buy and sell.

The ISXF ETF  targets Sterling-denominated corporate bonds with investment grade rating which are issued by non-financial organisations. Only bonds with a minimum remaining time to maturity of one year and a minimum amount outstanding of £100 million are included in the index. The fund has currently 299 different holdings - perhaps more than is necessary to diversify for safety. The main sectors are Industrial (63.5%) and Utilities (nearly 30%). Again, more of a concentration than I would consider in my own holdings.

Distribution is made semi-annually, with a current Distribution Yield of 4.62% and a Yield to Maturity of 4.82%.

This is attractive to me because I already hold a number of corporate bonds issued by financial institutions - and this ETF provides diversification.

The units in this ETF are of a relatively high value - reflecting the high unit cost of corporate bonds generally. I bought 40 units priced at 10,330p (i.e. £103.30 each) in mid-March 2011.

I do not expect any significant capital growth - this investment is for income only, providing a diversification in the portfolio from the 'ups and downs' of share prices. We shall see!

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.