What is a 'Gilt Fund'

Gilt funds are a type of British investment fund that invests in gilt securities. Gilts originated in Britain where gilt funds are primarily utilized.

BREAKING DOWN 'Gilt Fund'

Gilt funds are often known as one of Britain’s most conservative fixed income investments. The funds typically focus primarily on securities issued by the U.K. government called gilts. Gilt funds may also be found in India, which also issues gilt securities due to its historic designation as a British colony.

While gilt investments are primarily known to be government issued debt securities, they may also be offered by companies. In the U.K., high quality, low risk blue chip capital issuance of stocks or bonds may also be known as gilts or gilt-edged securities.

Gilt funds are primarily constructed with a conservative objective that includes investments with low risk. Similar to U.S. money market funds, they are a top investment for new investors seeking to earn returns slightly higher than traditional savings accounts. They most often invest in several different types of short-term, medium and long-term government securities. Since gilts or gilt-edged securities are also issued by corporations, gilt funds may also be constructed with corporate debt or equity gilt securities.

U.K. Government Gilts

U.K. gilt securities from the government primarily take three forms: conventional gilts, index-linked gilts and strips.

Conventional gilts – A conventional gilt issued by the U.K. government pays semi-annual coupon payments on the debt. U.K. gilts are issued with durations of five, 10 and 30 years. Some U.K. gilts may also be issued with a 55 year maturity or an undefined maturity.

Index-linked gilts – An index-linked gilt is similar to a Treasury inflation-protected security. These gilts have rates and principal payments linked to inflation. Investors receive varying coupon payments every six months based on the inflation rate.

Strips – Strips are gilt securities based on either the coupon component of a debt security or the principal payment. They strip an issued debt security into two parts for an investor.

Gilt Fund Investments

Gilt funds are offered by numerous investment managers across the investable market. Below are a few examples.

Henderson U.K. Gilt Fund

The Henderson U.K. Gilt Fund invests primarily in U.K. government gilt securities. It is managed by Janus Henderson. One year performance in the Fund’s investor share class was 2.10% as of December 1, 2017.

iShares Core U.K. Gilts UCITS ETF (IGLT)

The iShares Core U.K. Gilts UCITS ETF invests in U.K. government securities. As of December 1, 2017, 99.92% of the portfolio was in U.K. Treasury investments. One year return for the Fund as of October 31, 2017 was 0.51%. 

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