Vanguard LifeStrategy 20% Equity Acc

nxdmsandkaskdjaqd

I wanted to know if anyone could explain why this fund consistently performs (approx 9%pa) over the last few years. I have looked at other funds in this sector and none seem to have the consistent and steady performance that this fund delivers.

Regards

Carpi09

nxdmsandkaskdjaqd wrote: »

I wanted to know if anyone could explain why this fund consistently performs (approx 9%pa) over the last few years. I have looked at other funds in this sector and none seem to have the consistent and steady performance that this fund delivers.

Regards

Bonds have done well and considering this contains 80% non equity, this is probably why.

See more info on Vanguard LS here: https://forums.moneysavingexpert.com/discussion/4392271

nxdmsandkaskdjaqd

The performance of this fund is so straight, in an upward direction, it does not seem to quiver when the markets are up or down. Other bond funds just do not seam to perform in the same way.

It looks to me like this is a very good option as an alternative to a 'savings account' that deliveries 9%pa, with minimal risk.

I am trying to understand why this fund performs this way and can delivery this performance verses other bond funds, is there a specific reason for this?

Shaolin_Monkey

nxdmsandkaskdjaqd wrote: »

The performance of this fund is so straight, in an upward direction, it does not seem to quiver when the markets are up or down. Other bond funds just do not seam to perform in the same way.

You really haven't got a lot of data to work with. It's been running for less than two years. The drawdown in that period has been low (max 2% or so), but that is not to say there won't be periods in future where it behaves very differently.

It looks to me like this is a very good option as an alternative to a 'savings account' that deliveries 9%pa, with minimal risk.

Dangerous thinking I suspect. This is in no way an alternative to a cash savings account, and IMO should be considered a longer term investment like other funds.

I am trying to understand why this fund performs this way and can delivery this performance verses other bond funds, is there a specific reason for this?

It's a mixed asset fund (80% bonds and 20% shares) and over this period the investment conditions for either bonds or equities have been good. Some other mixed asset funds in the sector show a similar pattern (e.g. Jupiter Distribution, Fidelity Multi Asset Income). Equities have had an exceptionally good run since about mid 2012, and bonds have carried on their upward trend for most of the period too. Don't let this short period fool you that it will always do this going forward though - it won't.

bowlhead99

nxdmsandkaskdjaqd wrote: »

I wanted to know if anyone could explain why this fund consistently performs (approx 9%pa) over the last few years. I have looked at other funds in this sector and none seem to have the consistent and steady performance that this fund delivers.

1) As Carpi says, the fund is mostly UK bonds which pay fixed amounts of interest so all other things being equal you would expect the total return of the fund chart to be upwards in a straight line. Of course, all things are not equal and the price of the bonds themselves move over time. With market uncertainty and historic unprecedented low interest rates, the prices of bonds have moved to all time highs. Well, they are not quite at all time highs, having fallen back a little bit with increased appetite for risk recently - but that's been made up for by the equities component.

So basically the performance has been up in a kind-of straight line and at a faster rate than was historically usual for this type of investment. You would not expect the same results over the next few years as over the last few years.

If you go to trustnet.com and look at other funds in the bond sector or the "0-35% equities" sector you'll see similar (and better) results - it's just what the market has delivered in recent years for this type of investment, and Vanguard is not anything special.

2) The fund has only existed since June 2011. Nobody in the investment world would suggest looking at a fund chart over a period of less than two years and making any kind of judgement that its performance was 'consistent'.

In terms of consistency, because it's mostly bond (debt) based, it will be less volatile than investments which have more equities. While there's less than 2 years of actual performance data to look at, Vanguard have published some volatility information using the indexes they base their Lifestrategy funds on, going back further. https://www.vanguard.co.uk/documents/adv/literature/lifestrategy-volatility-underlying-indices.pdf

The performance of this fund is so straight, in an upward direction, it does not seem to quiver when the markets are up or down. Other bond funds just do not seam to perform in the same way.

Most funds invested in gilts and investment grade corporate bonds over this particular period will give similar results. If it looks particularly straight, it is just a freak of statistics. Over a 20 year period, the piece of string wobbles all over the place and you have just taken a photo of it at the split second it's reasonably straight.

It looks to me like this is a very good option as an alternative to a 'savings account' that deliveries 9%pa, with minimal risk.

This is why every piece of marketing for financial products which are not just cash accounts says that historic performance will not necessarily reflect the future results that you get. If this fund delivers 9% p.a. average over the next five years I will eat my hat.

This is not to say that 80% bonds, 20% equities can't outperform cash as a long term investment. Historically, they have. But forget about averaging 9%. You can get 2-2.5% in cash from your bank. You can't get 7% on top of that from an investment which is mostly government and investment-grade corporate bonds, when those asset classes are already at all-time highs

bowlhead99

nxdmsandkaskdjaqd wrote: »

The performance of this fund is so straight, in an upward direction, it does not seem to quiver when the markets are up or down. Other bond funds just do not seam to perform in the same way.

It looks to me like this is a very good option as an alternative to a 'savings account' that deliveries 9%pa, with minimal risk.

I don't really like opening old threads and replying to myself, but was looking back to try and find a link earlier, and came across this thread from 3 months ago.

I think the 3-month performance chart of this particular fund is a great example why investment promotions always give you the warnings about past performance not necessarily being an indicator of future results. Anyone viewing this as an alternative to a high interest low risk savings account would have been sorely disappointed:


Of course, 3 months is not a decent period over which to judge a fund and over 12 months it has done fine (up 5%+). But it's worth newbies being aware that a 5,10,15%+ fall can easily happen when you get complacent, even on funds which are 80% fixed interest.

dunstonh

The performance of this fund is so straight, in an upward direction, it does not seem to quiver when the markets are up or down.

It is only 20% equity. So, it would not expect to do so.

It looks to me like this is a very good option as an alternative to a 'savings account' that deliveries 9%pa, with minimal risk.

It certainly is not. It will have low volatility but loss of capital is still going to occur at times. and it certainly will not perform at 9% p.a. long term. That is not within it's expected long term average for the asset make up.

You cannot just look at good years and think that is the norm. You have to average out the nothing years and the bad years to get a figure that is more likely.

I am trying to understand why this fund performs this way and can delivery this performance verses other bond funds, is there a specific reason for this?

This fund is in the 0-35% equity sector. It has 20% equity. Other funds in the sector will have more equity or less equity. When comparing funds in a sector you have to look at their investment objectives and asset holdings. Especially when looking at short term periods. Typically, funds heavy in an asset class doing particularly well will go toward the top of the discreet performance table whilst funds lighter in that asset class will go towards the bottom. That doesnt make those funds going towards the bottom bad. It is just timing.

IN the last three months, the Vanguard 20% Equity LS fund has underperformed the sector average. Indeed, it is ranked 40 out of 42. Where it was invested heavily was just not the place to be during that period.

It happened to be in the right place at the right time during its first 12 months (ranked 2/30) but in its second 12 month period it was not (ranked 25/34 and underperforming sector average).

This is why investing is considered long term. You have to be in there long enough to cover good periods, bad periods and nothing periods. You dont know the order they will occur in. Just know they will happen.