Is Vanguard as core holding Okay?

SlapShot

JohnnyJet,

The thing to bear in mind with bonds is that their exposure to interest rate risk (I'm guessing that this is "the issue with bonds a the moment"?) is a function of duration. The shorter dated the bond, the less risk you run; you can't equate the potential losses on bonds with the potential losses from equities, except in the very long-dated end of the market, in very exceptional conditions. Hence the risk-reducing nature of bonds.

With that in mind, another issue I have with VLS is that their bond funds are relatively long duration, reflected a weighted average of the market. It's notable that e.g. Strategic Bond funds have significantly shorter duration at the minute. So, yes, comparing VLS60 to VLS80+strategic bond fund gets you broadly in the same place, albeit with a bond portolio that is less sensitive to interest rate risk. (If this is a good thing, anyway, in efficient markets you shouldn't be able to spot/profit from "obvious" things like this, it should already be priced in!).

FWIW I'm happy with that bet. Note also how some of the other multi-asset funds I mentioned get their fixed income exposure (Troy via very short-dated government bonds and IL bonds, Ruffer heavy into IL bonds, 7IM short-dated corporates and EM... there's a good spread of approaches!). Again, VLS isn't the be all and end all!

SlapShot

PS all of these funds are available on HL, with the exception of Ruffer, though you can buy their Investment Trust.

JohnnyJet

SlapShot wrote: »

PS all of these funds are available on HL, with the exception of Ruffer, though you can buy their Investment Trust.

I did have a look for these funds but was unable to find exact matches for the 7im funds and the L&G fund.

SlapShot

This is the 7IM one with both passive+active underlying investments:

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/c/cf-7im-balanced-fund-class-c-income

And the pure passive:

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/c/cf-7im-aap-balanced-class-c-income

My bad, the L&G fund isn't there! (I moved from HL earlier this year after the fees debacle!)

SlapShot

The latest Ruffer Equity & General report is an interesting read:

http://www.ruffer.co.uk/cmsfiles/reports/REG_Monthly_report.pdf

Commenting on its high cash weightings:

"REG’s ‘balanced’ approach uses a combination of
cash and equities. While we could debate whether
equities are overvalued or at a fair price, it is
absolutely clear that most of the fixed income world
is super expensive. The traditional balanced funds,
which combine government bonds and other credit
related securities with equities, run the risk of seeing
the price of both their equities and bonds decline at
the same time. Historically, the balanced fund
manager used to reduce his/her risk by cutting
equities and increasing bonds – cash was anathema.
This has worked well for more than 20 years when
bonds have been in a bull market. It has even
worked this year despite the fact that they are now
very overvalued. Our mantra is simple, if an asset is
expensive, we avoid it. We love intensely analysing
businesses, hence we risk adjust our equity holdings
– the larger the position, in our view the safer the
stock and vice versa – and we have more or less
cash depending on how much value we identify in
global equities."

Also, the Total Return fund (which is a duplicate of the Investment Trust):

http://www.ruffer.co.uk/cmsfiles/reports/RTRF_Monthly_report.pdf

shows a markedly different approach from other multi-asset funds (50% equity exposure including Japan at 17%, 35% index-linked gilts & treasuries).

Both represent effective strategy diversification from something like VLS.