Vanguard Life Strategy

bowlhead99

SLI is Standard Life Investments. # edit, just realised Dunstonh cleared that up hours ago! #

My comment on IPHI recent performance was really comparing it against equity income sector rather than equities as a whole. But it can be tricky when the boundaries of a sector can include different strategies and the IMA benchmark is just a loose fit for all of them.

Essentially if you believe in the idea of index tracking you accept the limitation that you have many times the exposure to company A than company B, in order to deliver the index result. You have a large basket but your eggs are all at one end of it. Your highest concentrations are in companies that are not necessarily any better, just bigger. Easy way of getting some exposure to large companies in major developed countries but sometimes quite far from the optimal mix depending on market conditions.

In IPHI, you will have infinity times as much in company A as you do in company B, if company B is not an income producer or is perhaps only showing a high yield on paper for what Woodford believes is the wrong reason. So you end up with a set of stocks with similar characteristics to each other, which gives you an eggs in one basket approach, but not a big deal as you would presumably be doing exactly that on purpose - to aim for a specific goal alongside other baskets doing other things for you.

If you're picking active managers you have to look at track records and assess how their strategies will do going forward based on your view of the market. No denying IPHI has a good record. But, with a large core of tracker investment, you only have space for a certain number of active funds in your portfolio so you do have to double check what exposure you're getting, what it adds vs the other holdings you have, and what else you will miss out on if you buy it at the expense of something else.

I should probably explain my comment above where I was saying I don't know why you would want to hold IPHI as well as the tracker. You already have some general cross-industry UK largecap exposure through the tracker with a mix of high and low growth and income. IPHI has a different industry mix, but it is not super heavy in lots of companies from one particular type of industry. It is still cross-industry, it is still largecap, it is still mostly UK listed. It is just a different way of picking stocks to get a more perhaps defensive mix. If defensive income payers are how you want to focus your UK largecap exposure, I would question why you were also holding a UK index tracker that buys random UK largecaps for the hell of it.

I find it easier to understand that you hold a largecap tracker for broad exposure with a SL smallcap to access a more dynamic sector of the economy; or a largecap tracker for broad exposure with a healthcare or biotech trust to match a particular conviction. However - this is probably my personal bias, as I often look for non core funds to add excitement or interesting contrarian or uncorrelated positions. I think of adding IPHI as too boring for that role in my portfolio, because it's the kind of fund that would be a basic core holding for many - why stick it on the side of a core you were already running with a different philosophy?

If I didn't have that particular personal outlook, strategy and prejudice, I would probably find myself saying that of course it's a valid thing to add to a portfolio for its defensive characteristics (less correlated with a tracker while still delivering equity returns) and it has an undeniable track record. My personal view is it's not one to hold if you think the markets are going to keep going up; and if you think they're going down there are other routes you could go instead. I can see the rationale why jamesd thinks it's a moderately good time to buy if you believe the markets still have legs from this level - I'm just unconvinced. I would err on the side of poor rather than moderate. But that's perhaps a view on market timing anyway...

jamesd

Well, I'd go with adjusting the core to get more global large cap there and less UK and bond.

JohnRo

bowlhead99 wrote: »

...Easy way of getting some exposure to large companies in major developed countries but sometimes quite far from the optimal mix depending on market conditions...

Most of the time I'd imagine, but that's how trackers are designed to work isn't it? The problem with optimal anything and unknowns is that hindsight is the only way you'll ever know what, how and where that optimal mix existed, after the fact. That's why index tracking aims to buy the haystack instead of wasting time and probably money looking for needles.

bowlhead99

jamesd wrote: »

Well, I'd go with adjusting the core to get more global large cap there and less UK and bond.

Well, I would too... 40% of the core being gilts and investment grade bonds is quite high for a young lad, and the VLS already has a UK skew to its equities component, which is why I questioned adding a chunk more largecap UK exposure with an income theme as a "side fund".

takesyourchances

Thank you again Bowlhead for you in depth reply and further explaining, I read your reply with great interest a few times to digest. I see that the IP High Income is largely used as a core fund and that I have a coverage of trackers as my core fund and your explanation of the cross overs as there is tracker coverage in the VLS that covers large cap companies for the UK in which IP High Income mostly holds.

I can see what you mean now that it is basically sticking a core on the side of a core in place with another philosophy on it and the placement of side funds are limited with the core tracker holding that I already have.

Also taking into consideration that it would be at the expense of another fund giving another tilt on the portfolio overall.

With 5 funds outside the VLS tracker core as in my last post I feel I have space for max of 7 funds within the 35% so they are limited with 2 more going on that allocation.

Maybe in another portfolio set up the IP High Income maybe is better suited, it does seem a quality fund and track record but can see the cross over better now.

I think maybe it is better now to look at what I don't have without a lot of cross over that would add something else.

I was considering a UK small cap, but there is a reasonable percentage as I mentioned in the SL Gobal Small Cap fund.

Looking at what else I hold I am low in European, partly as I was favoring Asia when putting the funds together that I have so now I have them maybe rounding off the Small Cap selection I have I could look at a European Small Cap fund.

Europe is an area I am maybe over looking and with a limited percentage space for my side funds that could be an oversight not to cover Europe a bit more with the long term in mind. The USA is covered reasonable in the SL Global Small Cap I have.

I see Jamesd mentioned Threadneedle European Small Cap which I can look over more as had a glance over it and it seems interesting coverage.

Some food for thought and thank you for your further explanation, while the IP High Income looks a solid fund I can see what you mean regarding it along with what I have and limited side fund space and what other exposure would be cut out in its place.

Thanks again to Jamesd as well for your input. Again, any thoughts would be good and I can consider what I don't have rather than crossing over large caps in sectors and look at the gaps.

jamesd

JohnRo wrote: »

Most of the time I'd imagine, but that's how trackers are designed to work isn't it?

Some of them. But there are also value and equal weight trackers instead of market cap and at least one study has shown that those outperform market cap weighted trackers.

JohnRo wrote: »

The problem with optimal anything and unknowns is that hindsight is the only way you'll ever know what, how and where that optimal mix existed, after the fact. That's why index tracking aims to buy the haystack instead of wasting time and probably money looking for needles.

Except that it is known that value investing beats non-value and small caps beat large caps but with more volatility.

That's part of why I'd be inclined in many market conditions to favour value large cap instead of market weighted large cap.

Glen_Clark

I have just opened an account and done a couple of purchases at https://www.X-O.co.uk but can't see anything about fees for holding Vanguard funds. Is it free?

bowlhead99

Glen_Clark wrote: »

I have just opened an account and done a couple of purchases at https://www.X-O.co.uk but can't see anything about fees for holding Vanguard funds. Is it free?

I didn't even know they did funds (i.e. oeics/ unit trusts), I thought they were just a low fee stockbroker for shares listed on uk markets?

With no annual charge for maintaining the nominee account/ isa account (so you could buy and hold an etf if you want, without the 'platform fee' that you'd pay somewhere that had real funds)...?

JohnRo

jamesd wrote: »

Some of them. But there are also value and equal weight trackers instead of market cap and at least one study has shown that those outperform market cap weighted trackers.

Except that it is known that value investing beats non-value and small caps beat large caps but with more volatility.

That's part of why I'd be inclined in many market conditions to favour value large cap instead of market weighted large cap.

If it was the holy grail everyone would be at it and then it wouldn't be. Best comment I've seen on alternative indexes is that you are often trading one flaw for another.

http://www.forbes.com/sites/rickferri/2013/04/29/no-free-lunch-from-equal-weight-sp-500/

takesyourchances

bowlhead99 wrote: »

Well, I would too... 40% of the core being gilts and investment grade bonds is quite high for a young lad, and the VLS already has a UK skew to its equities component, which is why I questioned adding a chunk more largecap UK exposure with an income theme as a "side fund".

I can see that for a longer investment period 40% bonds in the core is a good bit at towards 34 years old, with the side funds added the overall percent of the portfolio has reduced to maybe 20% bonds with the other funds added, I will need to check on the portfolio stats again.

I was considering maybe starting a VLS 80% in an SIPP as well, either sole or with the option at a later stage of a few varying side funds that I would not hold in my S&S ISA with the VLS 60% core that could tilt towards a second portfolio as at present I am using my ISA limits up with cash ISA and S&S ISA in the tax year.

Any opinions on this as this is an idea that keeps coming to mind when using up the ISA allowances.

I am still thinking what to do with the Halifax Stakeholder pension I have, I am still paying it but not upped the payments as could change this at some point.

Also regarding the S&S ISA, I now have the IP Income out of my mind still thinking toward rounding off the small cap in that set up with the possible European Small Cap fund and Threadneedle seems to be good, so will think on it a bit more.

Thanks.