Vanguard Life Strategy

Drp8713

Has anybody read this?

http://monevator.com/passive-fund-of-funds-the-rivals/

Anybody got the HSBC funds on their platform?

Stochasticity

smoulder wrote: »

I uncovered a little more information on the asset allocation changes. In the "Financial Adviser" section of the Vanguard website there's a press release titled "New enhanced LifeStrategy Funds – more diversification at even lower cost" dated 9-Jan-2014 which states the following:

"We’re enhancing the funds’ diversification by reducing their UK focus and raising their weightings in global equities and bonds, providing investors with broader exposure to stock markets and fixed income securities from across the world.

What’s more, the global bond exposure will be hedged back to sterling, so investors can be confident that the risk-dampening advantages of global bonds won’t be outweighed by unpredictable currency effects."

And on the "Individual Investor" section of their website, their Mutual Funds list now contains these new entries:

• Euro Government Bond Index Fund (Accumulation-Hedged)
• Euro Investment Grade Bond Index Fund (Accumulation-Hedged)
• Japan Government Bond Index Fund (Accumulation-Hedged)
• U.S. Government Bond Index Fund (Accumulation-Hedged)
• U.S. Investment Grade Credit Index Fund (Accumulation-Hedged)

I still don't see info on exactly which of those funds they will include in their LifeStrategy funds or in what proportions...

Full details, for those who are interested, on the new composition of the Vanguard LifeStrategy range can now be found here...

https://www.vanguard.co.uk/documents/adv/literature/lifestrategy-brochure.pdf

bowlhead99

andy013 wrote: »

bowlhead99 wrote: »

...whether corporate profits will outstrip the interest returns on lower risk fixed-interest corporate and government bonds.

Over any 20-30 year timescale you cherry pick from the last century, they do.

Just want to point out that this isn't true. There have been some 20 year periods where bonds have beaten equities, although it is rare.

Fair point, if the cherry picking is done to include the world wars and great depression and you restrict it to 20 years only rather than 25 or 30, then according to your Monevator link you will indeed find 3 occasions in the last century when bonds were a better option, against 97 when equities won

"We’re enhancing the funds’ diversification by reducing their UK focus and raising their weightings in global equities and bonds, providing investors with broader exposure to stock markets and fixed income securities from across the world.

What’s more, the global bond exposure will be hedged back to sterling, so investors can be confident that the risk-dampening advantages of global bonds won’t be outweighed by unpredictable currency effects.

Personally, I would have preferred if the global bond exposure wasn't hedged to sterling.

Part of the reason foreign equities and bonds are useful in a portfolio as they suggest, "to provide broader exposure" and "enhanced diversification" is because they are linked to the performance of economies around the world, each of which could perform better or worse than the UK over a given period.

The logic can also be extended to currency effects ; income streams and growth in multiple currencies are useful because in a global economy, the costs of whatever you will buy over the rest of your life will be linked to global cost bases and relative currency strengths and weaknesses. As with the performance of U.S. equities, European equities, Japanese equities versus UK equities: you have no idea whether the overseas currencies will get stronger or weaker than sterling.

So, IMHO the attempt to 'de-risk' a portfolio by hedging it, also has the effect of 'de-diversifying' it, to an extent ; and hedging is not possible without expense. So while Vanguard cutting the UK equities, UK bond portion of Lifestrategy is probably a good thing (you can always add another UK fund on the side if you want more UK exposure), their hedging of the new exposure will not be for everyone.

Don't get me wrong, I have invested in overseas funds hedged to sterling before, and in some cases have done quite a bit better than if the hedging hadn't been done. Long Japanese equities while short the yen would have been lucrative in recent times, rather than simply letting the sterling value of each yen asset devalue in line with their currency. Still, it's certainly not the only way to do it.

Stochasticity

bowlhead99 wrote: »

Personally, I would have preferred if the global bond exposure wasn't hedged to sterling.

Part of the reason foreign equities and bonds are useful in a portfolio as they suggest, "to provide broader exposure" and "enhanced diversification" is because they are linked to the performance of economies around the world, each of which could perform better or worse than the UK over a given period.

The logic can also be extended to currency effects ; income streams and growth in multiple currencies are useful because in a global economy, the costs of whatever you will buy over the rest of your life will be linked to global cost bases and relative currency strengths and weaknesses. As with the performance of U.S. equities, European equities, Japanese equities versus UK equities: you have no idea whether the overseas currencies will get stronger or weaker than sterling.

So, IMHO the attempt to 'de-risk' a portfolio by hedging it, also has the effect of 'de-diversifying' it, to an extent ; and hedging is not possible without expense. So while Vanguard cutting the UK equities, UK bond portion of Lifestrategy is probably a good thing (you can always add another UK fund on the side if you want more UK exposure), their hedging of the new exposure will not be for everyone.

Don't get me wrong, I have invested in overseas funds hedged to sterling before, and in some cases have done quite a bit better than if the hedging hadn't been done. Long Japanese equities while short the yen would have been lucrative in recent times, rather than simply letting the sterling value of each yen asset devalue in line with their currency. Still, it's certainly not the only way to do it.

Plenty of rationale behind hedging currency effects when investing into bonds, including from Vanguard themselves:

https://www.vanguard.co.uk/documents/inst/literature/global-fixed-income-considerations-uk-investors.pdf

In short, a lot of extra volatility and no guarantee of greater returns.

Edited to add a further link with more research on currency hedging (and their justification for adding global bonds to the LifeStrategy funds in the first place):

https://www.vanguard.co.uk/documents/adv/literature/going-global-with-bonds-tlor.pdf

hennerz

I've spent a lot of time looking but I'm just going to ask...

I have 11k to put into an ISA, (with 11k more going in in April).

I'd like to split it between 3 Vanguard Funds, two trackers and the LS80% and a Standard Life GARS fund..

I'm currently with HL which is around £45 for 10k, but then + £24*3 for all the VG funds.

Where should I look for cheaper? I plan on investing the maximum into my S&S ISA for the next few years at least.

grey_gym_sock

hennerz wrote: »

I'm currently with HL which is around £45 for 10k, but then + £24*3 for all the VG funds.

HL's £24 charge has been abolished. it's now 0.45% on all funds instead (well, on the first £250k in funds).

for relatively small holdings (say: up to £32k), all in funds, charles stanley direct would only charge 0.25% (if they have all the funds you want).

for bigger total holdings, look at some of the fixed-cost providers.

or, if you trade very infrequently, look at iweb, with no holding charges, but £5 for dealing (even in funds). which can work out well even for quite small holdings, if you only trade perhaps once a year.

DUS

Hello,

I just saw this thread as I am thinking of buying the Vanguard FTSE All-World Index ETF (VWRL) for my S&S ISA that I hold with HL. I have only managed to read a few pages of this thread so far but will continue reading tomorrow. In the meantime, I would love to ask a potentially simple question that came to mind:

What is the difference / the advantage for me as an investor if I buy the VWRL ETF or the VLS 100%? Don´t both "replicate" more or less the MSCI World index? I´ve seen the components of the VLS 100 but wonder if you expect both the VLS 100 and the VWRL to move up and down at the same pace/rate or if you prefer one over the other for performance or other reasons. Or would it potentially even make sense to hold both in a S&S ISA?

Lastly, I am not yet completely familiar with the new HL charges and fees structure, so may I ask if HL charges different fees for these 2 holdings (VLS vs VWRL)?

I promise to read more about this tomorrow but couldn´t resist to ask the community here before going to bed now. :-)

Cheers

DUS

andy013

DUS, I'm no expert but I will try and answer from my limited knowledge.

The first difference between VLS 100% and VWRL ETF is that the lifestrategy fund comes in 2 different types: income and accumulation. The income fund will pay out dividends into your account, the accumulation fund will automatically reinvest them.

ETFs come in 2 types as well, but they are named differently. Distributed (the dividends are paid out) or Capitalising (they are reinvested).

The VWRL ETF is distributed so dividends will be paid out to you and it may cost you a fee to reinvest them.

With HL they only reinvest the dividends once they reach £200 and they charge 1% but with a minimum of £10. So that could mean that your dividends are sitting there for a while and then you could end up paying 5% to reinvest them.


The charges are different:

For holding funds HL charge a flat 0.45% per year (which is rather expensive I have no doubt you could find a cheaper alternative if you shop around - there is a good comparison table here: http://monevator.com/compare-uk-cheapest-online-brokers/).

For ETFs there is no annual charge for holding them but it will cost you £11.95 per deal (or less if you are dealing over 9 times in a month)

The ETF has a slightly lower TER (0.08% difference). You would need to work out for yourself the cost difference based on the amount and frequency of your investments. If you were trying to minimize your trading frequency to reduce costs of the ETF then iWeb might be a good platform as they charge £5 per trade in both funds and ETF with no annual fee.

The lifestrategy fund also has a significantly higher amount of UK shares (35% vs 8% in the ETF) as well as some other differences in country diversification (as it is not trying to replicate an index by itself, it is just a collection of index trackers). The performance seems quite similar though and I don't think there would be any reason to hold both.

From my perspective it seems like the lifestrategy fund makes things a bit simpler. You would need to calculate the costs for each based on your own situation to see which is best.


There is a good article here about some of the differences between index funds and ETFs: http://monevator.com/etfs-vs-index-funds-differences/

primalgeek

andy013 wrote: »

For ETFs there is no annual charge for holding them but it will cost you £11.95 per deal (or less if you are dealing over 9 times in a month)

There is an annual charge of 0.45% for holding ETFs / ITs / Shares on HL. However this is capped at £45 for ISA holdings and £200 in a SIPP. There is no such cap on charges for holding Funds.

grey_gym_sock

a few really picky corrections:

andy013 wrote: »

With HL they only reinvest the dividends once they reach £200 and they charge 1% but with a minimum of £10.

HL have just reduced the minimum amount that will be reinvested to £10. the charge for reinvestment is 1%, with a minimum of £1 and a maximum of £10.

the minimum charge can be bad - if you get £10 reinvested, it costs £1, which is 10%!

The ETF has a slightly lower TER (0.08% difference).

lifestrategy's TER has just been reduced to 0.29% (for any of the funds), so the difference is now 0.04%.

The lifestrategy fund also has a significantly higher amount of UK shares (35% vs 8% in the ETF)

lifestrategy (100% equity) has just been amended to only 25% UK.