Less than a year ago, it felt difficult to choose a bond fund from a long list. So I picked one based on past returns, with a rather shaky knowledge base:
Aktia European High Yield Bond+ B
It’s chugging along quite nicely, in my opinion. The 12-month return is over 7%, but the management fee is quite high for this kind of fund at 0.8%. My own pot is almost at 6% return. From the interest, you can quickly get extra boost for the equity side if there’s a dip. Before, all my reserve funds were in a Nordnet account, but now it seems you can get a pretty nice return from interest. I’m happy with it.
This diversification benefit generally applies mainly to government bonds, whose correlation with stock markets is usually negative. One reason behind the negative correlation is that when the economy is doing poorly, not only do stock markets fall, but interest rates also decrease, which increases the value of debt securities.
Corporate bonds, and especially high-yield corporate bonds (High Yield), offer a higher interest rate compared to government bonds because they carry greater risk. This is called a risk premium. When the economy is doing poorly or there are risks in the air, this risk premium usually widens, meaning interest rates rise, which in turn lowers the value of these debt securities.
= High Yield corporate bonds and stock markets generally move in the same direction. Therefore, they are not the best place to keep extra ammunition in case of a stock market downturn. Otherwise, they are indeed quite viable investment targets, which I also hold through funds.
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Yep, I’ve noticed it can calculate too 
But since the movements are calmer than in the stock market, there’s more time to react compared to “everything tied to AI”. Buying forest would also be interesting, but prices are through the roof on that side.
I am also considering starting to build a bond component into my long-term portfolio. I would like to include both corporate bonds and government bonds. The intention would be to buy gradually through monthly savings for a long time with small amounts, with a horizon of over 10 years. The goal is that eventually bonds would constitute approximately 15% of the total equity investments.
Currently, I would be leaning towards this fund.
I have reviewed the offerings of Nordnet and a couple of other traditional banks and haven’t been able to find a similar or better product at a lower price.
What are your thoughts on this fund?
I’m also studying the same thing. However, actions will only be taken within about 10 years, because at some point I will gradually start converting some of the equity funds/ETFs within the investment insurance to the bond side.
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One thought at least arises from those management fees. The fund invests in other funds, so it needs to be checked from the fund’s rules whether it pays management fees from these investments to the target fund. Most likely it does, in which case the true effective costs are probably more than double the stated ones.
Another thought is government bonds with such a long investment horizon (10 years - several decades). I also pondered this with a similar horizon and ended up building the fixed-income portion of the portfolio (approx. 20%) from corporate bonds, high-yield corporate bonds, and emerging market government bonds.
It was much harder for me to compare these funds than equity funds. I mainly understood how to compare maturity and YTM figures, and finally settled on my traditional bank’s funds so that I could use the units as collateral for loans.
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As was already mentioned, it is a fund of funds, so it’s worth checking what the actual costs are since the “underlying” funds also include management fees.
In addition, the fund you linked has a W-designation. If I recall correctly, this series can only be bought by wealth management agreement clients or similar, and because of that, the management fee is 0.45%. The normal Kompassi Korko charges 0.90%. It’s worth confirming that.
Costs are on my mind too.
The rules state that
4 § Fees
The fund management company receives a management fee as compensation for its activities, which varies by fund unit series. The maximum management fee is 2 percent per annum calculated from the Fund’s value. Information on the management fee charged at any given time, as well as information on the maximum subscription and redemption fees of the Fund, can be found in the Fund’s currently valid key investor information document and prospectus. Information on fund fees can also be found in Sections 13 and 14 of the Funds’ common rules.
Then from the common rules:
14 § Compensation payable from Fund assets
Management and custody fees are charged from funds and collective investment undertakings that are investment targets of the Funds, in accordance with the rules of these funds and collective investment undertakings.
According to the key investor information document, that 0.45% is an estimate and is based on actual costs incurred in recent years.
Am I even reading the correct sections from these documents?
EDIT The rules seem to be exactly the same for all funds. Should I now trust the figure in the key investor information document, which is said to be an estimate based on actual costs?
Hi!
Could you tell me how much management fees are reasonable to pay for bond funds? What are considered reasonable costs? And let’s take Evli’s bond funds as an example? Are these expensive/reasonable, or is it more sensible to buy such funds from elsewhere?
Evli Nordic High Yield B
Evli High Yield Corporate Bond B
Evli Nordic Corporate Bond B
Evli Short Corporate Bond B
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Reasonable is a relative concept, and investing in bond funds is, in my opinion, fundamentally about risk avoidance. I, at least, think that when investing in bond funds, I have accepted a lower return based on lower risk or, more accurately, lower volatility. Risk is a somewhat difficult concept. If you invest in Konkurssi Oy Ab (Bankruptcy Ltd.) and it goes bankrupt, what is the difference if your investment is in stocks or corporate bonds? The difference is ultimately quite small. You can usually sell your shares on the stock exchange when the downturn is quite visible, and usually even after bankruptcy proceedings have started. You get something; for example, a 1000€ investment might yield a few tens of euros. Well, with corporate bonds, you might get something through a creditor arrangement. It’s impossible to say beforehand which one will give you a better return. The risk is practically that you can “lose all your money.”
If the worst-case outcome can be equated as “the same,” then why invest in a bond fund? The answer, in my opinion, is largely that the price does not fluctuate, and you are more likely to “get your money back,” meaning there is no need to sell at a large loss at any point. The possibility of a large loss is then, in a way, more significant in a bond fund than in a stock. With debt instruments, it’s difficult to get a large return from an improvement in the company’s situation, so investing in “bombs” is not so much a high risk, high reward type of situation, and those high rewards are quite rarely available. This then means that less volatility implies less upward volatility, i.e., the potential maximum return, which I already mentioned at the beginning of the message, meaning one has accepted that the investment will not bring top returns of 100% etc. over a longer time horizon, but rather a steady chugging upwards slowly.
The question now was about a reasonable cost. Let’s make a comparison, for example, to a cup of coffee. At a gas station, a reasonable price for coffee might be 2.5€ in your opinion. If you go to a tourist destination, say Paris, the same reasonable cost might be 4€, and coffee in many places costs up to 7€. This is very comparable to investing. A reasonable price must be relative to what is available. For fixed income investments, it’s about what you get for that price. Regarding the EVLi funds mentioned, one must consider what is actually desired from them? You have invested, for example, in Nordic corporate bonds. It is certainly difficult to get a comparable product significantly cheaper. But the question immediately arises, is it necessary? By looking at the fund’s performance relative to its benchmark index, one can see that the fund has outperformed the index and yielded quite well, so in my opinion, it is justified to invest in it. On the other hand, the fund’s yield was 4.1%, which I consider “average” and tells something about the expected future return, meaning that level can be anticipated as a return. Well, if the fee is 0.75%/4.1%*100%=18%, meaning in practice the fee takes 18% of the return. I think that’s a lot, but in this case, it’s justifiable because the portfolio manager has been able to generate better returns than the index. I would not put a terribly large portion of my investments into that particular fund. It requires continuous success from the portfolio manager. On the other hand, there might be opportunities in the small, niche corporate bond markets of the Nordics, and it might be difficult to find a better alternative for investing in them. Well, this writing can be quite directly replicated for EVLi high yield corporate bonds. There, the risk of low-quality bonds increases, but conversely, in small markets, there can be those “gem” opportunities in a different way. Short-term corporate bonds have also performed excellently relative to the index. A comparable fund might be difficult to find.
In my opinion, the most questionable fund is EVLi High Yield Corporate Bond. It has not performed well against the index and has high fees. However, there might be good opportunities now. Overall, I think the package is quite okay. You have a good chance of getting better fixed-income returns than the index and value for the high fees.
I recently watched an interview with Reima Salminen on Sijoituskästi (Investment Podcast), and what stuck with me was his comment that active portfolio management is more profitable in bond funds, and good funds can be found. These EVLI funds seem to be one such example, and I am very interested in others’ opinions and views on this matter, which is why I responded to this and started a discussion. Finally, I’ll include a comparison of the EVLI High Yield fund, which I’ve “criticized a bit,” compared to Nordnet’s monthly savings iShares € High Yield Corporate Bond.
At least for me, it makes me think. I am interested in others’ thoughts.
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Fixed-income investments have their place in a diversified investment portfolio, possibly also bond funds.
Every investor should keep at least part of their portfolio in a highly liquid form. Bank deposits, money market funds, and short-term bond funds are suitable for this purpose. All of these have slightly different risk and return profiles, especially when exceeding the deposit guarantee limit.
With unsecured loans, it’s exactly as you say: the risk of loss is the same as with stocks, but the return potential is capped. The overall picture changes completely from a fixed-income investor’s perspective when talking about secured senior loans (senior secured). These are not cut in debt restructuring, and the collateral usually has such a value that one can get their money back even in bankruptcy. The yield percentage for these is single-digit, but as a low-risk option, they can very well be suitable as part of an investment portfolio.
Long-term fixed-income securities and their funds are a particularly interesting investment during periods of falling interest rates. From Evli’s bond funds, one could get roughly 10% annual returns in 2023-2024 as interest rates fell.
Bond funds practically only invest in fixed-income securities of larger companies. When moving to loans of smaller companies, interest rates are practically always double-digit. In this private debt market, one can also achieve excellent returns through direct investments or funds.
Fees are high in many bond funds, making the fund investor’s activities more difficult. I had one of Evli’s bond funds in my portfolio, for which I paid a 0.75% annual management fee, but I earned just under 10% on an approximately one-year investment after fees. I don’t know what other options there would have been, as the purpose of the investment was specifically to benefit from the appreciation of long-term fixed-income securities as interest rates fell.
It’s worth having a discussion with oneself about topics such as why I want to invest in fund/instrument X, what the investment’s return/risk profile is, what the investment’s holding period is, and what the triggers are for realizing the investment. The investment horizon for bond funds can hardly be eternal, as markets can turn in a way that makes it unprofitable for an investor to be involved. Currently, for example, yields on long-term government bonds are around 3%, and I haven’t found a reason why one should be involved in that market at the current return level.
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From Vuohensilta’s investment corner, I have received the most concise and understandable summary of the differences in bond funds so far.
So, if we consider ourselves to be at the interest rate bottom now and interest rates (whatever they might be in this case) were to start rising, then, based on duration, bond funds would correspondingly fall.
As I understand it, this also means for VGEA, VAGF, and VDTE that since they all have a duration of over 5, they are not the safest investments when interest rates rise.
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Are inflation-protected bond funds / linkers necessary as part of a retail investor’s diversified bond portfolio? I haven’t noticed them being discussed much, at least not in Finland. I don’t personally have a view on accelerating inflation, but AI services recommend them as a kind of insurance as part of the overall investment portfolio.
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I’ve been thinking about this myself, especially as I’m planning the asset allocation for different classes 10–20 years ahead for when I eventually retire.
Since government bonds offer very little yield and the risk level of IG (Investment Grade) corporate bonds is in the same ballpark, I’ve been considering the following combination + some short-term fixed income. The total weighting of the fixed-income portfolio would perhaps be around 30%.
-Nordea Corporate Bond
-iShares Euro Inflation Linked Government Bond UCITS ETF
But there’s still time to reflect on the situation. It’s interesting that among fixed-income funds, many actively managed funds have beaten low-cost equivalent ETFs in terms of returns, if you look at the last 5 or 10 years, for example.
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Collateralized Loan Obligations (CLOs) have built-in inflation protection. It’s worth googling.
I have a similar timeframe for retirement myself. From what I’ve studied about fixed-income investments, and recently with strong guidance from AI, a well-diversified bond portfolio consists of several different components, and each has more or less its own specific role.
I was taught that you don’t buy government bonds just for the yield, but as insurance/protection in a recession where the economy stalls, stocks and interest rates fall, and the long duration of government bonds provides strong returns to offset the decline in stocks. Corporate bonds aren’t as suited for this task because, having credit risk, they tend to fall along with stocks.
Linkers (inflation-linked bonds) probably behave a bit differently in such a crisis even though they are government bonds, but they are insurance for a different kind of environment. Their return depends on several factors, and an average retail investor like me doesn’t immediately grasp those mechanisms. However, actual inflation affects the return, and the AI calculated that with a moderate 2.0% Eurozone inflation, for example, the return on LYQ7 would fall 0.4% short of the government bond return used for comparison. With 2.4% or higher inflation, it would then perform better in this scenario. It’s not worth over-insuring, but a tiny amount doesn’t make a difference. I’ll go with a relatively moderate amount, and there’s always room for more rows in the portfolio.
Who knows, though—in the 2022 crisis, stocks, long-term government bonds, and linkers all fell.
In some fixed-income podcast 2–3 years ago, it was explained that indexing might not work the same way on the bond side as it does on the equity side. In the most efficient markets and low-yield assets, it’s apparently difficult for a portfolio manager to even cover their fee, such as with government bonds and large corporate bonds. I already have a bit in an active government bond fund and am considering whether to switch to an index. In the IG (Investment Grade) class, index returns have gone quite low, and something active could perhaps be found from, say, Evli.
Regarding AI, I’ve only recently started using it more, and it’s quite amazing stuff. However, I’ve noticed it makes mistakes and shouldn’t be trusted implicitly. Even looking up the right tickers for Xetra is surprisingly challenging.
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Thanks for this apparently good tip.
Even though I’m posting here, I haven’t bothered to find out what these are yet. If I had to guess, I wonder if you can only get in with a larger investment, and where do you even get these. Wasn’t there that old adage: don’t invest in anything you don’t understand