Vanguard UK Equity Income tracker

simonfitba

Hello all,

I already hold the Vanguard Lifestrategy 80% fund (only) in my S&S ISA with HL.

I also hold some shares outside an ISA (four companies) with the idea of building a high-yield UK portfolio.

But now I'm thinking it would be better to just add the Vanguard UK Equity Income tracker to my ISA. I know this would cost me another £24 in HL fees but it might actually work out cheaper in the long run when dealing fees are taken into account.

Does anyone have any thoughts on this?

PS. I reckon if I did this I'd put about £10k into the Vanguard UK Equity Income tracker, which would be about 25% of my S&S ISA.

simonfitba

Also, is the Vanguard UK Equity Income tracker an alternative to the Invesco Perpetual High Income fund?

To me it seems to do the same thing but with less charges.

westy22

The TER for the Vanguard fund is 0.25% - the TER for IPHI is 1.69%. The question is whether you believe that Neil Woodford's stock-picking skills are worth 1.44% per annum extra charge.

Historically, Woodford has consistently outperformed the market by clever stock picking and avoiding the dog companies. He is currently very heavy on pharmas and tobacco and light on financials - is this a good thing or a bad thing? Who knows until a couple of years down the line?

Personally, my money stays with Woodford - IPHI is the only OEIC I have kept after converting everything else to trackers and ITs (including Edinburgh IT which is also Woodford).

grey_gym_sock

there are also more question marks over high-yield trackers (than trackers which select companies only by market capitalization), because a mechanical process may select companies who have a higher yield because they are likely to cut their dividends, or where there are limited prospects for dividend growth.

simonfitba

As I understand it, the Vanguard UK Equity Income tracker picks large/mega-cap firms in its majority holdings. It doesn't seem to be a Dogs of the Footsie with only the very highest yields.

Doesn't this make it less likely to suffer limited growth/huge dividend cuts?

westy22

This is the Vanguard Fact Sheet https://www.vanguard.co.uk/documents/portal/factsheets/ftse_uk_equity_income.pdf

It appears to hold 119 companies in proportions approximate to the index weighting. It is not true 'stock-picking' which is why it is a tracker. The computer will not act on 'hunches' like Woodford does. Earlier this year he decided to sell almost all his Tesco holding and bought more GSK and AZN - a computer would never have done that. I'm not saying that Woodford was right to do this - only time will tell, but he has not often called it wrong.

westy22

Charting the 2 funds is quite interesting. Over 3 years (Vanguard fund launched in 2009) IPHI produced a total return of 49.93% against VAN's 43.98% - not too much difference. However, over the last 12 months IPHI has produced a positive 9.76% against VAN's negative -0.59%. That is where the value of stock-picking comes in a difficult market. Pay 0.25% TER and get -0.59% or pay 1.69% TER and get 9.76%?

simonfitba

True. I realise it's computer based.

Would it be too risky to make it 25% of my S&S ISA alongside my Lifestrategy holding? (This percentage would decrease over time as I topped up the Lifestrategy fund)

Surely it would be better than a more limited high-income shares portfolio selected by me, outside and ISA

simonfitba

westy22 wrote: »

Charting the 2 funds is quite interesting. Over 3 years (Vanguard fund launched in 2009) IPHI produced a total return of 49.93% against VAN's 43.98% - not too much difference. However, over the last 12 months IPHI has produced a positive 9.76% against VAN's negative -0.59%. That is where the value of stock-picking comes in a difficult market. Pay 0.25% TER and get -0.59% or pay 1.69% TER and get 9.76%?

I agree in the last 12 months IPHI is ahead. But over the three years the Vanguard product was ahead more often than it was behind. (At least in the chart I looked at on HL) Which might make it a better bet for long term.

simonfitba

And in acc units Vanguard appears to be well ahead over three years.

westy22

I don't think that 'risk' plays much of a part in this - OK, the risk is slightly higher in the Equity Income tracker than in the LS 80% as it is all equity rather than 80% equity. I just don't see what the inclusion of an Equity Income tracker adds to your portfolio.

If you like the LS 80% as a core holding but wish to add a little 'spice' to your portfolio I would think that a better addition would be US specific or emerging markets.

FWIW my SIPP (which is substantial) is 70% Vanguard LS 80%, spiced with 15% Van US Equity and 15% IPHI and, as my signature indicates, I am already in my 60's but I enjoy the ride, even the bumps along the way!