RE: Warnings on Dealing17 May 2024 21:23
Unless Monkswood would care to contradict me, I would say that there is certainly a higher risk than some stocks because of the nature of the securities TFIF owns. But the management team has a very good track record and, to date, none of the securities its owned have ever left them out of the money i.e. insufficient collateral to repay the debt at maturity.
It should be recognised from the outset that TFIF does not just deal in bonds issued by European governments which, under normal conditions, are generally considered 100% secure from default. It also holds residential mortgage backed securities (RMBS), asset backed securities (ABS, income-generating debts such as credit card debts, home equity loans, student loans, and car loans) and collateralised loan obligations (CLO). CLO are classed as derivative instruments. As you will appreciate, general economic conditions can have an impact on the assets underlying all of these securities but TFIF tends to manage this risk by trading off investment return against recoverability i.e. by tending to buy higher rated securities/tranches which offer lower returns for greater investment security rather than junk bonds (there's a tiered order in which investors are paid should the underlying assets be insufficient to repay the debt at maturity, e.g. AAA are repaid before AAB etc, and the return on each tier recognises the greater risk of non-payment at maturity). Also, if this is of additional comfort, TFIF limits itself to just the European market (it doesn't own any US or RoW securities).
It sounds as if ii might be classifying TFIF as a complex instrument. The definition of complex instrument appears to vary from one broker to the next; I was asked to renew my complex instrument credentials by AJ Bell recently and decided to ring them (because their definition of a ncomplex instrument was, in my view, a bit "wooly" and could have conceviably included all and any investment trusts) to go through my current shareholdings line by line (including TFIF) and was able to confirm that none of my current investments were flagged as complex instruments by AJ Bell.
Personally, I do not consider TFIF to be a complex instrument because, importantly, unlike (say) unit trusts there should always be a market for its shares (you are not reliant on TFIF being able to sell its underlying investments to be able to sell your shares). Certainly there is, perhaps, a higher risk attached to TFIF's shares in the event that there was a repeat of the 2008 financial crisis and you could make signficant losses if you were forced to sell at the bottom but it has to be recognised that no shares are likley to perform particularly well in a general market meltdown and you are a forced seller. However, due to TFIF's diversified portfolio, the risk to TFIF should one of its investments go pear-shaped ought to be fairly negligible.
Hope that helps. As always, only invest what you can afford to lose.