Chinese Bonds - AGBP Global Bond ETF GBP Hedged

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paddyreilly75
Posts: 9
Joined: Sun Mar 05, 2023 12:26 pm

Chinese Bonds - AGBP Global Bond ETF GBP Hedged

Post by paddyreilly75 »

I'm a UK resident invested in a simple 2 fund portfolio. 1 Global stock fund, 1 bond fund

For the bond fund I'd picked

https://www.morningstar.com/etfs/xlon/agbp/portfolio

I've looked recently at the portfolio makeup and its got a lot of Chinese bonds. Should I be concerned
I thought this was tracking the Bloomberg Global Bond Agg tracker

VAGP seems to be the only viable alternative in the UK. Should I switch?
glorat
Posts: 1067
Joined: Thu Apr 18, 2019 2:17 am

Re: Chinese Bonds - AGBP Global Bond ETF GBP Hedged

Post by glorat »

I was wondering what "a lot" was so I went to source to look
https://www.ishares.com/uk/individual/e ... -ucits-etf

Type Fund (%)
United States 40.06
China 9.86
Japan 9.61
France 5.12
Germany 4.75
United Kingdom 4.39
Canada 3.57
Italy 3.16
Supranational 2.35
Spain 2.29
Australia 1.66
Korea (South) 1.3

So yeah, I suppose that's a lot in that it is more than I expected but that's just the global market cap per the index. Me personally, I'm not concerned. Why should I be?
Mors
Posts: 284
Joined: Wed Aug 16, 2017 10:06 am

Re: Chinese Bonds - AGBP Global Bond ETF GBP Hedged

Post by Mors »

I also prefer the scaled and hedged index that the Vanguard etf follows, that has drastically less china bonds. That being said, it is not a case of concern. If you feel more comfortable with less china bonds, switch to a global fund or etf with less of them.
glorat
Posts: 1067
Joined: Thu Apr 18, 2019 2:17 am

Re: Chinese Bonds - AGBP Global Bond ETF GBP Hedged

Post by glorat »

So I thought I'd check Vanguard too

Country Fund
United States of America 45.50%
Japan 6.20%
France 5.90%
Germany 5.50%
Canada 4.10%
United Kingdom 3.90%
Italy 3.70%
Supranational 2.90%
Spain 2.70%
Australia 1.90%
South Korea 1.70%
Netherlands 1.60%

So yeah, that's noticeably different. If you are indeed concerned about China exposure, Vanguard seems the way to go.

On reflection, I can understand why some would have concerns on China exposure but discussion on that topic might veer off from forum moderation rules. I will carefully state that normally the biggest market risk when choosing bonds is credit quality - i.e. likelihood of default. However, credit risk is fully priced in risk and compensated in the pricing of bonds so this should not be a reason to avoid certain countries (e.g. I would fully dispute those that say you should avoid Italy bonds on that basis). However, if you perceive a risk of a country vanishing to zero as has previously happened with emerging markets, it costs you nothing to avoid such countries.

Disclaimer: I'm on iShares AGGG and have no concerns sticking with that personally but ultimately am not advising which of the two choices is better.
Mors
Posts: 284
Joined: Wed Aug 16, 2017 10:06 am

Re: Chinese Bonds - AGBP Global Bond ETF GBP Hedged

Post by Mors »

From my understanding, china bonds lack liquidity, the index that vanguard follows approximates better the free float.
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