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    • chockydavid1983
    • By chockydavid1983 7th Sep 17, 4:02 PM
    • 422Posts
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    chockydavid1983
    Why does VLS hold FTSE All share, 250 & 100
    • #1
    • 7th Sep 17, 4:02 PM
    Why does VLS hold FTSE All share, 250 & 100 7th Sep 17 at 4:02 PM
    Hi

    Looking into potentially creating a custom portfolio for myself and was looking at what I have at the moment (mainly VLS 100) and noticed they have all 3 of these and wondered why that would be? It appears to overweight large companies in particular.
    https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares/portfolio-data

    Chris.
Page 1
    • msallen
    • By msallen 7th Sep 17, 4:52 PM
    • 526 Posts
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    msallen
    • #2
    • 7th Sep 17, 4:52 PM
    • #2
    • 7th Sep 17, 4:52 PM
    My guess (and that's all it is) is that this is the way it over-weights its UK holding, by increasing holdings in the larger companies.
    • chockydavid1983
    • By chockydavid1983 7th Sep 17, 5:07 PM
    • 422 Posts
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    chockydavid1983
    • #3
    • 7th Sep 17, 5:07 PM
    • #3
    • 7th Sep 17, 5:07 PM
    Would overweighing the large companies not reduce its UK holding though, given the large companies make more of their money overseas than the smaller ones? I.e. it looks like there's a 25% home bias but really it's less
    • bowlhead99
    • By bowlhead99 7th Sep 17, 5:18 PM
    • 6,690 Posts
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    bowlhead99
    • #4
    • 7th Sep 17, 5:18 PM
    • #4
    • 7th Sep 17, 5:18 PM
    and was looking at what I have at the moment (mainly VLS 100) and noticed they have all 3 of these and wondered why that would be?
    Originally posted by chockydavid1983
    Vanguard runs a number of single-index tracker funds (including FTSE all share, FTSE 100, FTSE250).Each of them will generally be more efficient to operate, the bigger and more liquid it is.

    So, as Vanguard is collecting together billions of pounds of investor money through the Lifestrategy fund-of-funds, to be deployed around the world through its specialist single-index funds, and wants to put a chunk of it into the UK stockmarket on a cheap, cap-weighted basis; it makes sense that they wouldn't *just* put it all through the UK all-share fund, and wouldn't *just* put it through a combination of FTSE 250 and FTSE100, but instead would use all three of those available underlying products.
    It appears to overweight large companies in particular.
    Within the all-share, the FTSE100 is around 5x the market capitalisation of the FTSE250, so it makes sense that of the 6.6% of the overall fund that they have decided to put into those two products, the ratio is around 5.5% to 1.1%.

    Would overweighing the large companies not reduce its UK holding though, given the large companies make more of their money overseas than the smaller ones? I.e. it looks like there's a 25% home bias but really it's less
    Originally posted by chockydavid1983
    It doesn't really "overweight" the large versus the small, as mentioned the large is about 5x the small which is broadly in line with how it is inside the FTSE UK all-share anyway.

    Similarly all the other regional index funds are using market-cap weighting too - so there is more in a global company like Microsoft or Google than there is in a domestic US manufacturing or construction firm), more in Total or Nestle than in a French or Swiss retailer etc.

    It's true that 25% UK stockmarket allocation when the UK has a high proportion of international giants gives you less than 25% "pure" UK. However, likewise you in the UK are probably a consumer of Microsoft or Google or Total or Nestle products from time to time so those companies have UK revenues and when you have a US or Europe ex UK tracker you are getting some UK operating profits via that route in a roundabout way.

    If you were building your own portfolio from scratch you quite possibly wouldn't choose to have all your UK stockmarket exposure come from simple cap weighting of companies in the allshare proportions, because the mix of industry sectors and size factor allocation isn't very broad. However as a cheap and cheerful solution that also combines lots of other largecap companies from around the world, it's a reasonable way to get started, and you could do a lot worse.
    Last edited by bowlhead99; 07-09-2017 at 5:43 PM. Reason: Formatting and added a bit
    • chockydavid1983
    • By chockydavid1983 7th Sep 17, 5:33 PM
    • 422 Posts
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    chockydavid1983
    • #5
    • 7th Sep 17, 5:33 PM
    • #5
    • 7th Sep 17, 5:33 PM
    Thanks Bowlhead, I hadn't though of it from Vanguard's POV.
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