What caught my eye this week.
Vanguard cut the fees on seven of its bond ETFs this week. For the full list see the table below.
I got a heads-up on this fee-flailing from a thoughtful Monevator reader. They speculated that perhaps the price cuts were needed to gee up enthusiasm for bonds after the big crash of 2022.
Given the scorn that some Monevator commenters heap upon bonds nowadays, I can see where this thinking comes from. But I don’t believe it’s right.
In fact money has been pouring into bonds recently.
UK bond funds recorded net inflows of £57bn in 2024, after two years of outflows.
Also many cash-rich private investors have also been buying short-dated gilts for the tax benefits. We explained why and how in a member post in November.
So why the disconnect?
Once bitten by bonds
I believe that many thoughtful and engaged passive investors were a bit blindsided by the bond rout as interest rates soared a few years ago.
These investors had commendably educated themselves about the benefits of a diversified portfolio.
But they’d taken away an over-simplified mantra that ‘bonds are safe’, and skipped the small print.
In fact, bonds at near-zero yields were primed for likely poor returns. The unpredictable thing was the bad returns came all at once. Instead of a slow bleed for a decade, balanced portfolios lost an artery.
Thus investors who’d put their money into, say, a 60/40 portfolio believing they were doing the responsible thing were blindsided when owning bonds made things even worse in 2022. Not such much a buffer as melting butter.
It might have gone differently. There are timelines were equities crashed and instead of inflation we got deflation. For instance: if governments and central banks hadn’t flooded the system with liquidity to fight the pandemic in 2020. In that case, think 1930s lost decade-style returns for equities.
True, you probably still wouldn’t have seen good returns from bonds – that’s maths – but annualised small losses from bonds may have buffered huge declines in the stock market.
Bonds are back
Today’s expected returns for bonds are much healthier anyway.
The yield-to-maturity on a ten-year gilt is 4.5%. Lend the government money for three decades and a 30-year gilt will pay you 5.2% annualised for doing so.
Of course you have to account for inflation, but in theory that should be around 2%. If you’re not convinced that will hold then an index-linked gilt of the same duration will deliver a 2% real return, if held to maturity.
Lower fees please
Vanguard’s cuts are small in that they’re just a few basis points – but chunky reductions with respect to these already tiny fees:
Source: Vanguard Investor
What’s ironic is that these fee cuts have come when the expected returns from bonds are much higher.
Even ten basis points of fees made barely-there returns even worse when fixed income was brain-numbingly expensive back in 2020.
But with expected annual returns from UK bonds in the 4-5.5% range, smaller fees are gilding the lily.
Finally – just to reassure the strangely persistent Vanguard conspiracy theorists out there – no Vanguard didn’t pay for this post. It didn’t even alert us about the price cuts.
And yes other good ETF providers are available.
I just thought the move was worth highlighting given Vanguard’s size and all the ongoing confusion about the asset class.
Also, it’s a great demonstration that even very cheap funds can get cheaper.
Have a great weekend.
p.s. If you’ve ever been a fan of Formula One racing then you need to see F1: The Movie on a big screen. It’s Top Gun: Maverick on wheels and a nostalgic blast from the past!
From Monevator
Profiting from the UK stock market liquidation – Monevator [Mogul Members]
Trump’s ‘revenge tax’ and your US investments – Monevator
From the archive-ator: What to expect from commercial property – Monevator
News
Starmer’s benefits U-turns will cost £4.5bn, warns think tank – Independent
Number of higher-rate UK taxpayers expected to breach 7m this year – Guardian
Workers on-track for a ‘lost decade’ of stagnant earnings – Resolution Foundation
JP Morgan turns bullish on British bonds – This Is Money
UK set to ‘lose more millionaires’ than any other country… – City AM
…while new map shows where Britain’s population will grow by 2032… – Yahoo
…with 300,000 middle-earners priced out of Inner London by 2035 – Standard
Edinburgh GDP-per-head surpasses London for the first time – Edinburgh News
Gates close for private equity buying British companies cheap – This Is Money
European countries ranked by average family income [Infographic] – Visual Capitalist
Russia’s economy is down but not out – BBC
The US has bounced back into the danger zone (decile 1 in this chart) – Charlie Bilello
Tough jobs market mini-special
UK graduates enduring worst jobs market since 2018, says Indeed – Guardian
Young people face a hiring crisis. AI isn’t helping – The Atlantic
UK jobs market is among worst I’ve ever seen, says Reed CEO – City AM
Big Four slash graduate jobs as AI takes on entry-level work – City AM
Government launches £54m fund to attract top researchers and innovators – GOV.UK
Young professionals swamped by ‘infinite workdays’ – Guardian
Economic inactivity is falling, but there’s more to be done – Economics UK
Products and services
Zopa enters current account market with cashback and 7.1% savings interest – Standard
Retirees risk losing thousands by not shopping around for annuities – Which
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this link. Terms apply – Charles Stanley
Premium Bond prize fund rate will be cut from August – P.A. via Yahoo
eSims for traveling abroad: how much can you save? – Be Clever With Your Cash
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply. Capital at risk) – InvestEngine
10 ways wedding guests can save money in 2025 – Which
Got your Monevator mug? – Monevator shop
Mortgages and property mini-special
Nationwide changes rules to allow first-time buys with a 5% deposit – T.I.M.
FCA revisits rules on interest-only mortgages – Guardian
Average two-year BTL rates below 5% for first time since 2022 – T.I.M.
Ten hotspots for million pound properties – Rightmove
Rules protecting homeowners from repossession may be scrapped – Guardian
Homes for sale in harbour towns and villages, in pictures – Guardian
Comment and opinion
Are UK workers over-taxed? Three infographics – Tax Policy Associates
Happiness and money – Humble Dollar
The rollercoaster ride of Britain’s financial markets [Paywall] – FT
Allan Roth: lessons on money and life learned from Warren Buffett – Advisor Perspectives
What’s better than US bonds for downside protection? – Of Dollars and Data
Being human means being a bad investor – Behavioural Investment
A 2025 perspective on active management’s persistent failure – Wealth Management
Investing in inflation-linked government bonds [US but relevant] – Morningstar
If IHT rules come in, there will be a ‘sea change’ in retirement portfolios – FT Adviser
Naughty corner: Active antics
Investment trust numbers down 17% as ‘takeover frenzy’ continues – Trustnet
Swapping a rental property for a share portfolio – Fire V London
Cliff Asness of AQR on quant investing and more [Podcast] – Money Stuff
The King of Spacs is back [Paywall] – FT
Private markets are eating the world – The Irrelevant Investor
Bitcoin company goes from £4m to £1bn in two months [Um…] – This Is Money
Are stablecoins money? [Paywall] – FT
Kindle book bargains
How to Own the World by Andrew Craig – £0.99 on Kindle
The Algebra of Wealth by Scott Galloway – £0.99 on Kindle
The Big Short by Michael Lewis – £0.99 on Kindle
Skunk Works: A Memoir of My Years at Lockheed by Ben Rich – £0.99 on Kindle
Environmental factors
Green investing with a vengeance – Klement on Investing
The next financial crisis could start with the climate [Paywall] – FT
What do floating solar panels mean for wildlife? – Grist
Plastic bag bans and fees curb shoreline litter, study suggests – BBC
Extinction crisis could see 500 bird species disappear within a century… – Guardian
…and it’s looking bad for coral reefs, too – Guardian
No meat mini-special
Why there’s a growing backlash against plant-based diets – The Conversation
Vegan, but you don’t try to convert others? You’ve a high EQ – VegOut
Robot overlord roundup
Is talking to ChatGPT about personal finance ever a good idea? – White Coat Investor
Can AI speak the language Japan tried to kill? – BBC
Recalculating the costs and benefits of Gen AI – Harvard Business Review
Checking in on AI and the Big Five – Stratechery
Judge rules Anthropic training on books it purchased was ‘fair use’ – Sherwood
How AI models remember, not predict, financial data – Larry Swedroe
Not at the dinner table
How Britain’s new political divide delivers votes to Reform and the Greens – The Conversation
The neocons a generation on [Paywall] – Financial Times
Attention and speculation are now primary economic drivers – Kyla Scanlon
In the US, the expectation of political violence is becoming endemic – The New Yorker
Off our beat
Science says these five simple tests can predict how long you will live – Inc
The business of betting on catastrophe – MIT Press
Elio sees Pixar peter out… – Spyglass
…with its woes emblematic of bigger problems for Hollywood – CNBC
The afterlife of our online accounts – Six Colours
Prescribe weight-loss drugs first, say top cardiologists – Fortune
Inside Hollywood’s $200m bet on Formula One – Huddle Up
The UK’s best seaside towns, ranked – Which
And finally…
“What was generally described as a ‘financial crisis’ a decade or so ago was just part of a huge structural change in how the world’s economy works. This is not some temporary cyclical blip; it is not just part of a normal business cycle. Things are not going to return to ‘normal’ and the economy is not going to ‘recover’, at least not to the way it was between 1945 and 2007.”
– Andrew Craig, How To Own The World
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Thanks TI, I see Vanguard also launched two new bond fund/ETFs on their own platform: a short-term gilt fund and a global government bond ETF. Good to see them offering more options, especially on gilt duration.
https://www.vanguard.co.uk/professional/insights/new-short-term-gilts-fund-completes-our-uk-bond-exposures-line-up
@tetromino — Cheers, the short-term gilt fund is a welcome addition, be good to see some duration data though as I can’t see any in the factsheet. (Obviously very early days, but we need to see what we’re buying 🙂 )
DOI, I find crypto more cringe than David Brent’s dance routine in The Office, but I’m still waiting to see a use case for crypto other than fraud, crime or speculation. Yes, Trump and his cronies are doing their best to get a piece of the action through their own pump and dumps, but the investment case is non existent, and we still have the horrific waste of energy involved. If crypto does anything worthwhile in my lifetime I’ll eat my hat, but I just can’t see it happening.
#3 @marc148513: TIMs’ piece in the links above about The Smarter Web Company IPO. Looks like 80 mn shares @2.5 p each in April now trading @£2.38 (down from £5). 1000s% premium to BTC holding NAV! (ROFLMAO to that 😉 ) Crypto might be a rolling Ponzi du jour show, but what a way to transfer wealth from the gullible/late to the early/quick. And yet people wonder why Millennials and Gen Z aren’t interested in bonds on 4% p.a. If you were in their place, with the ‘toughest job market’ for newbies in memory, and facing high rents/deposits, wouldn’t you do the same if roles were reversed?
The Accumulator has made a good case here that linker funds are flawed, and that one is better off with individual linkers instead. I’ve come to the conclusion that the same applies to *all* bond funds (except short duration ones). The explanation was in one of the Weekend Reading links a few weeks ago. The fund structure amplifies duration risk. Funds can suffer a capital loss for much longer than their maturity suggests, during prolonged periods of rising interest rates. Rising rates are often bad for stocks too, stocks being long-duration assets, so this is a problem for diversification.
The effect may explain some of the 60/40 losses in 2022. The bigger factor was of course that bonds were just abysmal value and guaranteed to deliver a real loss.
“… in that they’re of hundredths of a basis point”
Looks like you meant to write percent.
The “UK set to ‘lose more millionaires’” article is based on another report from Henley & Partner’s which has largely been discredited:
https://taxjustice.net/press/millionaire-exodus-did-not-occur-study-reveals/
Some select quotes from Tax Justice:
“The number of millionaires claimed by Henley & Partners to be leaving countries in “exodus” in 2024 represented near-0% of those countries’ millionaire populations. For example, the 9,500 millionaires widely reported to be leaving the UK in 2024 represented 0.3% of the UK’s 3.06 million millionaires.”
“The report’s methodology states that its estimates are primarily a measure of where millionaires say they work on social media and not of where they live or reside, meaning the report does not track actual, physical migration.”
“The report uses a far narrower definition of ‘millionaires’ that does not include all dollar millionaires like the standard definition (people with net worth of 1 million dollars or more), but rather only individuals with liquid assets worth 1 million dollars or more, who are thus richer and more mobile on average than a standardly defined millionaire.”
The tough jobs market for young people links are interesting. Many on here claiming that we need massive levels of immigration to avoid an inverse Malthusian disaster… whilst those below 25 and above 50 getting the brush off might raise a knowing eyebrow at that.
Time for the media and financial writers to start calling the 40% income tax band the ‘middle’ rate and the 45% the ‘higher rate’, rather than the Government’s euphemisms which were designed for an era when the 40% band was only applicable to a very small % of earners, not almost a third of wage earners as now.
@platformer
The caveat with the Tax Justice definition of millionaire, which they say covers over 3 million people, is that it includes a person’s equity in their own home, which is highly illiquid and very politically difficult to tax (hence no CGT etc). Henley’s point is that liquid millionaires (who yes might well be multi-millionaires in asset terms) tend to pay disproportionately more tax than the vast majority of the population, and these are precisely the people Reeves needs in order to make her sums add up. That shortfall won’t be recovered from pensioners living in fairly normal houses in southern England, many of whom will be millionaires by the TJ definition.
For Pixar/Disney, the issue isn’t that their audiences want risk-free sequels – it’s that some of the new originals aren’t very good or just don’t have product/market fit. For example, Wish felt like the lyrics had been written by corporate and the storyline conceived by AI. Pixar? Increasingly high concept premises which are hard to market or position – even if the movies are good. Are families really clamouring for animated movies about souls, elements, and teenage menstruation?
@DavidV — Cheers, yes, typo in the transition from one unit to another there I think.
As a passive conservative investor of many years standing with a large chunk of monies in a Vanguard Global Bond fund albeit an OEIC (bought so long ago before the advent of ETFs) I am considering the ETF equivalent-if I can be bothered
It’s probably worth another £450+ pa to me but at 79 making more money for Mrs Reeves has little appeal
Obviously to be in this happy position I must have saved enough,have a low withdrawal rate and be a frugal liver -perhaps all three
However having just forked out over £14000 to get a knee op for my 79 year old wife before she dies-such are the waiting times in Scotland-perhaps I should reconsider!
I have never been upset by the performance of my bond fund in the portfolio-even 2022-it has done what bonds are supposed to do for me in my retirement-and is currently running at 60% of my Asset Allocation
At the end of the day it’s all very personal of course
xxd09
As the father of an 18 year old trying to get their first big job or deciding to go to Uni I can confirm many aspects of the articles regarding recruitment, entry level jobs and AI. Rachel from Accounts has massively impacted the number of new roles on offer. Then the hoops that firms are making youngsters jump through (e.g. last week 1.5 hours of AI/Psychometric tests for a part time shelf stacker summer job increasing to multiple hours and stages of online and video tests just to get an assessment day place) often with zero feedback or even a response at all (what happened to basic respect?) are insane and totally inappropriate. Add to that the distinct possibility that once having done a 3/4 year degree in IT with all the associated debt they will be massively out of date because the academic institutions and courses are not keeping up with the pace of real change. Most of the Computer Science degrees on offer don’t even feature AI as a topic ….. Grim times ahead.
@Faustus Henley doesn’t provide a consistent estimate of the population size using their definition of millionaire, or confirm how they calculated the estimate they did provide in one interview of 602,000. Even in this population, 9,500 people leaving is 1.6%. They have not even stated if this is a net figure so it could be that more millionaires moved here then left.
There are a whole bunch of other issues which make clear this ‘research’ was shallow with the intention of generating publicity (which isn’t that surprising). I only looked into this as was genuinely interested to know the answer but that’s not to be found in the Henley report.
@TI (#2)
The new Vanguard short gilt fund tracks the Bloomberg UK Gilt 1-5Yr Float Adjusted Index, so the duration will be around the 3 year mark – for comparison, a similar fund (SPDR Bloomberg 1-5 Yr Gilt ETF Dis) has an effective duration of 2.63 years and a effective maturity of 2.79 years.
Hmm. Notably, no Vanguard fee reduction for the corresponding bond OEICs.
I’ve been increasing bond allocation across a broad spectrum of bond types for over 2 years now, and happy to take on some duration risk on individually held long gilts to lock in some of that tempting 5% yield for my income portfolio.
I will hopefully just about outlive the maturity dates.
On the job market, I do feel for graduates, especially for those who took what should have been the right degrees. I would love to hire a Computer Science or related IT degree grad for my team but the ruling from above is that we can now only bring in people from India – working remote or sometimes even onsite – via the big outsourcing companies.
This, along with AI, is absolutely killing the entry level IT jobs market in Britain. Pretty much every major bank and financial services organisation is doing this. In just 3 years my team has gone from all UK staff to 30% UK-based, and in less than 3-5 years I am pretty sure it will be almost zero.
Looking at IT salaries I think outside a few small niches and locations, they have really gone nowhere much in the last decade, if not 15 years.
As for more experienced ex-colleagues looking for work, it looks pretty bad out there according to stories on LinkedIn.
It has certainly put a rocket up my arse to achieve financial independence over the last couple of years in particular, and not assume the next work I find will be highly paid.
@SemiPassive: how long before this meaningfully spreads outside IT and customer service/call centres to the wider employment landscape?
If agentic LLMs (effectively narrow scope but deep machine learning) can automate most cognitive labour at negible incremental cost then, ‘joining up the dots’ here, the situation could become really quite grim. Consider:
1) Ever fewer potential workers due to sub replacement fertility globally;
2) Whilst populism inhibits free movement of labour for less / presently non automatable physical labour (e.g. health, care home workers, plumbers etc)
3) But, of desk bound workers, the available pool of graduates can’t get jobs because of ‘AI’ agents and/or off shore outsourcing
4) Less employee tax revenue (and employer NI) with higher working age benefit burden.
5) Increased corporate profit share of GDP is off shored to tax havens (as s. 899 kills off digital service tax and multinational top up tax) – ‘AI’ gains privatised and losses socialised.
6) At same time, the cost of essential public goods workers in the NHS and care homes rises due to (essentially self inflicted, immigration restriction caused) shortages, further raising the cost of health/social provision to the Exchequer, especially with an aging population and ‘AI’ assisted breakthroughs in genetics and pharmacology leading to demands for new (and doubtlessly very expensive) personalised treatments.
7) Consequently the burden of government borrowing rises even further and faster than expected. Without more paid in wages firms become more productive but not the economy at large, whose tax base is undermined.
8) Government debt demands then crowd out private sector investment and borrowing.
9) Bonds fall and yields rise substantially, with the increasing deficits and reduced state capacity (including in relation to taxation)
Last two points seem more likely to me than an inflate away scenario because the public understandably really hates inflation – much more than risk of unemployment given that, at least initially, unemployment and under employment affects only some people, whilst inflation affects everyone, everywhere immediately.
However, unlike with deindustrialisation in the 1980s, AI agents/automation could eventually come for most jobs. If we get affordable and versatile humanoid robots then that risk is even more so, but we’re already on the path to this dystopia with computer based desk jobs AFAICT.
Seeing fewer grad’s chuck their twenties away, slaving over pitchbooks and the like until the early hours of the morning etc for big city firms can only be a good thing. Let fewer people utilise LLMs to create the same material while those with the energy, smarts and creativity are directed to the serious problems that do afflict our society.
“essential public goods workers in the NHS” Until the last couple of weeks I wouldn’t have argued with that description. But it turns out that one (or a few?) parts of the NHS has refused medical treatment to children because they attended private schools. So, on the rule that it’s not a public good if it is excludable, I conclude that NHS employees can no longer be assumed to be
“public goods workers”. The spread of two-tierism, eh?
@dearieme #20: On the basis that what can’t continue indefinitely ultimately won’t, and every Ponzi gets called out in the end.
I’d guess it’s going to be means testing and private insurance based top ups from here onwards to as far as the eye can see on education, on social entitlements, on care and on health services.
Just as DJT’s undoing the New Deal settlement of 1933-53, so Farage will herald the end of Atlee’s New Jerusalem of 1945-51.
It’s going to be everyone for themselves. A Hobbesian struggle of all against all. I can’t see this ending well.
@Azamino #19: I don’t generally do the DT, but the grad employment situation really does look genuinely bleak, with 50% to 80% vacancy reductions 2025 v 2020:
https://www.telegraph.co.uk/business/2025/06/30/entry-level-jobs-in-free-fall-after-launch-of-chatgpt/
Whatever the benefits of this new era of cheap ‘AI’ and expensive employer NI in terms of tools for those lucky enough to have and retain decent white collar jobs, it’s still one heck of a price already being paid by the younger generation.
@dearieme#20, @howard#21, I went looking for this story as I wasn’t aware of it and it seems that as usual with the DM the reporting doesn’t quite square with the reality. It seems to be much more about the complications of children in the SENS system, which others have written about here from a position of personal experience.
That’s not to say that things could get more difficult in lots of ways from now on.
Agreed on the bleak outlook for the young. If you are hired for a role that requires security clearance that at least provides some protection against outsourcing. But I’ve seen at first hand the nonsense that has to be gone through to get the first job, and that was before AI.
The graduate problem seems to be a demand/supply issue. We will need people who understand how to supervise and manage AIs, good understanding of business processes, org transformation etc – and frankly, there is no reason why a recent graduate couldn’t do at least some of that. They might even be better at it than more established employees who will be grumbling about their own exceptionalism until an AI replaces much of their work. I have been sharing the attached with as many soon-to-graduates as I can:
https://80000hours.org/agi/guide/skills-ai-makes-valuable/
@G #23 Interesting article although the solution “just go and work for an AI startup” is pretty glib. I think it also illustrates the problem that the skills you mention are not being taught as part of present or future IT degrees. The idea of starting a 3 or 4 year IT degree that teaches increasingly irrelevant skills becomes troublesome. And that’s in the IT industry. For other disciplines such as Law and Accounting the change is going to come even quicker I fear. What we need is for Academia to embrace these tools rather than fearing and banning them and for companies to be incentivised to take on new entry level staff (not just grads) to use these tools – unfortunately our current masters seem to be doing everything possible to discourage this
Prior to the 1986 Big Bang legions of twenty-somethings were not being hired by the banks and big consulting firms. Some of those jobs, maybe the majority, will disappear but the people will not and new opportunities for them will open up.