Hi all,

I've got some units of the Artemis High Income bond fund which I bought when I first opened my SIPP.

I started my SIPP by buying a few unit trusts. However, since then I've decided that I'd rather trade commodities & equities (which has been quite successful to date) but I'm not sure whether to cut my losses on the bond fund. It's only showing small capital loss since I bought it.

Does anyone know about bonds? The fund manager seems to think this is a good time for buying bonds (some of which are yielding ~9%) but although the dividends are good the value of the units seem to be heading south .

Bonds are fixed income, and fixed capital. This means that the interest rate cannot be increased in the face of rising inflation (as would happen with market interest rates), which subsequently means that bonds have their value (both income and capital) diminshed by inflation.

In addition, bond income is fixed, and if market interest rates rise, then the bond represents less good value that it did with low market interest rates.

Bonds therefore lose market value in the following circumstances:
1. If there is increasing concern that the institution offering the bond may default on repayment (e.g. due to under capitalisation, or over-leverage).
2. If inflation is high, or is expected to rise
3. If interest rates rise, or are expected to rise.

The best time to invest in bonds is:
1. When interest rates have peaked and are expected to fall
2. At the nadir of a recession/credit contraction
3. When inflationary pressures begin to ease

Thanks! I sold out of it, as there didn't seem to be much potential for it going forward and the charges were a bit steep.

I much prefer ETF's for my SIPP now as the charges are low and being able to invest in commodities and use shorting techniques let you start your own hedge fund. If you can't beat them, join them .