Is Vanguard as core holding Okay?

JohnnyJet · 19 July 2014 at 3:46PM

I have been investing a modest monthly amount with HL into several funds over the last few years and would like to increase this amount this year so that I will have a better chance of meeting my investment goal. Some of the funds I have been investing in are Vanguard LS 60, JPM Natural Resources, Aberdeen EM, a strategic bond fund and a distribution fund.

Now that I am putting more in I feel I need to have a more focused plan. I don't want to spend a lot of time administering the funds and I am considering the following -

EM index tracker - 5%
JPM Natural Resources 5%
Vanguard LS 60 - 80%
US or Asia fund 10%

I know the Vanguard fund has about 4.5% EM coverage and also about 15-20% in the US. I am happy with up to 10% in EM (4.5% Vanguard + 5% EM tracker), not sure if I really need the NR fund, but if this is a good idea then is there an equivalent tracker fund? And finally I was considering extra in a US fund or more likely an Asia fund for diversification.

I should also state that I still have over 70% of funds in cash ISAs which is earning poor interest and I would like to use some of this money to drip feed the funds. My goal is to use the funds for early retirement before my pension kicks in and to top up my pension when it starts. I also prefer a passive approach and am gradually moving over to these type of funds.

I would appreciate any help or possible funds/structures to consider.

Thanks

Drp8713 · 19 July 2014 at 4:04PM

You could maybe look at an Investment Trust for the EM. I like GSS, the geographical breakdown is good (see the factsheet) and at HL as it is FTSE250 it only costs £1.50 to buy using monthly saving.

The JPM fund is made up of miners mostly, you could just buy a Gold, Silver or Platinum ETF if something not correlated with equities is what you were after.

JohnnyJet · 21 July 2014 at 5:26PM

I was considering Blackrock EM Equity Tracker with an annual charge of 0.18 but I will have a look at the IT. Not bought an IT before. I switched from Aberdeen EM to Newton EM Income after they imposed the extra entry charge and want to reduce my annual charge.

Totton · 21 July 2014 at 10:45PM

At 80% the VLS fund is very dominant. Whenever I have read up on core & sattelite portfolio construction the weighting to core is around 65%.

Your proposed structure of adding those risky funds suggests to me that perhaps a VLS 80 holding at 100% might do as well over time.

JohnnyJet · 22 July 2014 at 8:13PM

Totton wrote: »

At 80% the VLS fund is very dominant. Whenever I have read up on core & sattelite portfolio construction the weighting to core is around 65%.

Your proposed structure of adding those risky funds suggests to me that perhaps a VLS 80 holding at 100% might do as well over time.

Thanks I will consider reducing the VLS a little bit but I don't want a portfolio that I have to keep checking. The VLS funds seem a little weighty towards the UK market that's why I was considering the US and Asia. If it wasn't for the high UK position then it would be a pretty good fit for me. I wanted a little extra with the EM fund as without it I would struggle to have a chance to meet my goal.

Totton · 22 July 2014 at 8:23PM

I think they reduced their UK cover a little while back. They may do so again.

sav500 · 25 July 2014 at 8:29PM

I followed this thread when I first saw it as this strategy is similar to my own thinking.
I have recently read Tim Hales –Smarter Investor so am sold on the idea of passive investing. Hale even provides some example Asset Portfolios and Monevator even suggests some Trackers to use. Great. To follow Hale exactly would require holding 11 different funds. Then I thought, to make things simpler, maybe I could just buy VLS 60% fund, a commodity fund and a commercial property fund to achieve similar results. All funds are currently held in ISA’s.
I am hoping to retire in a couple of years and income from the ISA’s would be used to supplement my FS pension. Rather than juggling/rebalancing 11 different funds annually, it would be a lot easier to just sell some VLS fund units to provide the extra money I will need to pay for clothing(not a lot), holidays( a few but cycle touring is cheap), bicycle parts(my hobby) and loose women (dream on!). The withdrawal rate would be less than 3%.
Your thoughts would be appreciated?

Totton · 25 July 2014 at 10:21PM

When I held the VLS as a single holding my problem was simply the dividend was paid once a year and even then the yield was not great. I much prefer more frequent payments for dividend holdings.

JohnnyJet · 25 July 2014 at 11:21PM

I chose the VLS 60 so that I could dabble in a few higher risk funds or trackers, this would allow the possibility of bringing forward my retirement. I have also recently read Tim Hale's book and it hasn't really changed my view of moving to more passive funds. As an example I have an EM fund that is currently performing 10% below equivalent trackers in that sector. Exactly why am I paying the fund manager?

sav500 · 26 July 2014 at 7:14PM

Totton wrote: »

When I held the VLS as a single holding my problem was simply the dividend was paid once a year and even then the yield was not great. I much prefer more frequent payments for dividend holdings.

My VLS 60 units are Acc. I wouldn't be looking for the dividend income. The value of the units would increase in time so would just sell units to cover the extra money I would need to cover the extras, as explained above. A lot simpler than rebalancing the 11 funds that Hale suggests and taking some income out in the process.

masonic · 26 July 2014 at 7:37PM

sav500 wrote: »

My VLS 60 units are Acc. I wouldn't be looking for the dividend income. The value of the units would increase in time so would just sell units to cover the extra money I would need to cover the extras, as explained above. A lot simpler than rebalancing the 11 funds that Hale suggests and taking some income out in the process.

It's worth pointing out that the portfolio you are proposing does not have the 'smaller companies' or 'value' tilts, so the equivalent Smarter Investing Portfolio would contain 7 funds and may underperform the full 11 fund equivalent over the long term. It still makes sense to use VLS 60 to get the large cap and bond exposure if you are happy with the sector allocation of VLS.

Is Vanguard as core holding Okay?

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