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Which Vanguard life strategy fund will be most suitable for my situation?

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  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    omnirife wrote: »
    I read an article yesterday, by the way, which said that Woodford didn't outperform a particular passive tracker:

    http://view.ceros.com/citywire/edition-7-september-2014/p/19

    Is this because the authors have only taken data from a specific timescale and that, the rest of the time, Woodford was generally doing better than index?
    Yes, that's right. Here is some of that text:
    We picked the Vanguard fund to pit against an actively managed fund because we preferred its approach to that of the other passive equity income giant, iShares UK Dividend Ucits ETF.
    Even though that passive equity income giant has been running for almost 10 years and would therefore be a meaningful comparison with the active funds because you could see what would happen in both up and down markets? That sounds a bit dumb.

    I wonder if the reason they 'preferred its approach' was that it performed better than the iShares one, with the benefit of hindsight? And doesn't the very fact that there are different 'approaches' available when trying to use a passive tracker fund, mean that the issue of selecting managers has elements of the difficulties you encounter when selecting active managers, therefore going against one of the main arguments for using trackers?
    But we were being a bit sneaky too. We knew the Vanguard fund would come out on top: it's no secret, and is a fact often referred to by financial advisers who believe in the passive approach to investment. Woodford's famous aversion to banks would have played a part in Vanguard's victory on the capital return front. He might have invited in HSBC last year, but he didn't hold Lloyds, Barclays or RBS over the three years, when the share prices of all three rose substantially.
    Yes, it is probably 'a bit sneaky' to select a period from 2011 to do the comparison when pretty much all stocks in the index are rising, including banks which were recovering from the credit crunch. If you track the period during which Lloyds and RBS double or triple their value and conveniently ignore the fact that the only reason they can achieve that is that they just lost 95% of their value before you started the clock - you can claim all sorts of things.
    ... worth pointing out that both IP Income and High Income morphed into more growth oriented strategies and eventually had to leave their equity income peers to join the IMA All Companies sector
    True, there has been some scope creep which you shouldn't/ wouldn't get in a tracker. Although the components of trackers do change over time because of cap weightings and so on. Ratio of banks to oilers will have changed substantially over the credit crunch. Also, if we're talking about what sort of things should be in scope for an income fund to invest in, we can't really criticise Woodford/ Invesco for not holding Lloyds and RBS in 2011, can we. By 2011, neither had paid an ordinary dividend since 2008 and three years later still haven't. So hardly what someone looking for income would want. Purely a growth play with potential for future income much further down the line.
    doesn't mean investors should be rushing out of CF Woodford Equity Income as quickly as they rushed into it, and snap up a tracker.
    Ah, the voice of reason. If you have selected one approach, you probably shouldn't change strategy after zero months of letting it run, when the articles about back-testing results in hindsight don't tell you anything at all you didn't know when deciding to buy in, in the first place.
    We've run the two funds up against each other for as long a time period as we can..
    Yes, by selecting a passive fund with a short and significantly positive lifespan...
    :from when the Vanguard fund launched in June 2009
    ...at almost the market bottom, trying to 'track' performance on the way up
    Of course, that doesn't capture the impact of Woodford shunning banks when the credit crunch bit, and tech stocks when the tech bubble burst
    Ah, they do get that their 'head to head analysis of active vs passive income approaches' has been entirely compromised by excluding all the times when the superstar active manager managed like a superstar and only including the strong positive growth market when any 'monkey with a pin' investment solution could have made money.

    As they mention, the vanguard income fund hasn't existed for very long so you would have to look at the ishares one instead that follows the FTSE UK Dividend+ Index. The capital value of the ETF fell from 1370 in May 2007 to 470 in March 2009 with a little over 100 of income along the way. So, a near enough 60% drop. IPHI's loss was 35%. So, doing the calculations really roughly, assuming you invested £100 in May 2007, the IPHI investors had £65 in 2009 to the passive income investors' £40. If the IPHI investors' capital and income return is 100% over the next few years they are at £130. The passive income fund's investors need to get 225% in those same few years.
    And you'd have to construct a very clever tracker to be able to make those sorts of calls.
    Well, the point of buying a tracker is that it is cheap because the manager deliberately doesn't have to make any 'calls'. But this makes it very difficult to use a tracker to follow a strategy such as investing for income, because without an algorthim that looks at the prices and the dividend payouts and determines whether the dividend yield is a high percentage because it's an inherently good company in a good industry, versus a company whose yield appears high because it's unsustainable and the market has lost faith, you may be investing in a lot of garbage.

    I think the article is deliberately being a bit tongue in cheek really. By saying things like 'we were being a bit sneaky', and 'of course, that doesn't capture the impact of Woodford avoiding losing more than half your money in the other periods we couldn't get easy data for', it tells you that it is only a bit of fun. The fact that later in the publication they look at Europe and watch the Eurostoxx Select Div ETF lose 40% over 6 years to Dec 13 while the Invesco equivalent gave +10% and delivered more income, shows that passive trackers don't do so well when you stop cherry picking the time periods and markets. Of course, cherry picking Invesco over another manager is also a cheat.

    All of this is looking at how things actually performed with hindsight and without reference to how we thought they would have performed at the time the investments were being made. So, impossible to do without bias if you are a financial journalist making your living off commentating on funds that are available and have your own personal preferences and those of your advertisers to consider.
  • collingbone614
    collingbone614 Posts: 180 Forumite
    edited 5 October 2014 at 3:05PM
    Historically, has there been anything which has held its value or produced at least some returns during a correction or crash, besides active funds?

    I am wondering about:

    Property - BlackRock Global Property Securities Equity Tracker
    Gold - iShares Physical Gold ETC
    Commodities - ETF Thomson Reuters/Jefferies CRB Ex-Energy TR

    You could even look towards the 'new' emerging markets, though by their nature there might be limited data on these(?)

    'New' emerging markets - Advance Frontier Markets (Ordinary Share)

    Risky and volatile stuff..
  • Linton
    Linton Posts: 18,154 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    omnirife wrote: »
    Historically, has there been anything which has held its value or produced at least some returns during a correction or crash, besides active funds?

    I am wondering about:

    Property - BlackRock Global Property Securities Equity Tracker
    Gold - iShares Physical Gold ETC
    Commodities - ETF Thomson Reuters/Jefferies CRB Ex-Energy TR

    You could even look towards the 'new' emerging markets, though by their nature there might be limited data on these(?)

    'New' emerging markets - Advance Frontier Markets (Ordinary Share)

    Risky and volatile stuff..

    Whether something holds its value in an equity (ie shares) crash is little to do with whether a fund is active or passive, or whether it has a star manager or not, but simply what the fund invests in - the underlying asset.

    This is one reason why diversification is essential. If equity falls it is balanced by things that behave differently to equity.

    Taking your examples...

    In the old days "property" consisted of investing in buildings which could be rented out long term. This steady rent provided a solid income which could tide one over the times when shares fell. If anything property would increase in value as it became a more desirable investment than shares.

    Nowadays this is much less the case as the underlying estimated value of the property itself falls when the economy falls as fewer companies want the office space. The property capital value is now perhaps more important than the rent it generates.

    Gold is an option as it waxes and wains according to its own unfathomable rules. It may not be a great investment but it is diversification.

    Commodities again were less linked to equity that they now are. When the global economy falters all commodities globally are in less demand.

    The standard hedge against equity falls was and remains government bonds and safe corporate bonds, and to a lesser extent cash.
  • badger09
    badger09 Posts: 11,575 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    All interesting stuff chaps.

    I see OP has thanked almost every post. I do wonder though just how much it has helped her/him :(

    OP - that isn't meant to sound patronising :o. Many of these threads soon become derailed by knowledgeable posters with opposing opinions (or strongly held facts as I refer to them when held by my husband :p)

    OP for what its worth, I'm a good few years older than you, already retired on a final salary pension, with substantial cash savings. I started investing only a couple of years ago and took the plunge with the VLS 100%. While it may not be ideal, its not a bad place to start while you learn a bit more ;),
  • badger09 wrote: »
    All interesting stuff chaps.

    I see OP has thanked almost every post. I do wonder though just how much it has helped her/him :(

    OP - that isn't meant to sound patronising :o. Many of these threads soon become derailed by knowledgeable posters with opposing opinions (or strongly held facts as I refer to them when held by my husband :p)

    OP for what its worth, I'm a good few years older than you, already retired on a final salary pension, with substantial cash savings. I started investing only a couple of years ago and took the plunge with the VLS 100%. While it may not be ideal, its not a bad place to start while you learn a bit more ;),

    Hello yes would like to thank all those who have answered. It seems the more I read the further I get away from making a decision.

    For now I think I will invest 1/2 of my available money for savings into the Vanguard 80 I have already opened monthly and save the other half in cash in the best interest paying current accounts. It seems like a reasonable compromise . I am thankful to have my NHS Pension , this will mean all my basic needs will be covered, and I will also have some cash savings . I see the Vanguard 80 as a risk I am prepared to take - if it goes well, brilliant , if not so be it.
  • Ryan_Futuristics
    Ryan_Futuristics Posts: 795 Forumite
    edited 6 October 2014 at 1:16PM
    omnirife wrote: »
    Hi, this is interesting. I come at this as a newbie passive investor. What is it that makes you say the next 5 - 10 years? My own understanding is that there is some sort of a crash due. But what is it that makes us believe things will be poor for those with heavy exposures to the above equities and bonds markets for the next half or full decade?

    I appreciate your views.

    I read an article yesterday, by the way, which said that Woodford didn't outperform a particular passive tracker:

    http://view.ceros.com/citywire/edition-7-september-2014/p/19

    Is this because the authors have only taken data from a specific timescale and that, the rest of the time, Woodford was generally doing better than index?

    There's certainly a 'correction' due

    What basically happens is that the underlying value of an investment starts to lag what people are paying for it ... Price/earnings is a simple measure of how much you're paying for a company (or index) vs how much it's earning (CAPE is another metric - Cyclically Adjusted Price/Earnings)

    Right now many of us are forced into holding equities because cash is losing value against inflation, and many other asset classes look even more overvalued ... So we're buying UK and US stocks even though we might be paying a bit over the odds

    At some point, this becomes unsustainable, and markets begin to revert back to their underlying valuations (and people tend to panic, and want to get out early, and then you've got your 'crash')

    Next year, we're going to start putting interest rates up ... This immediately spells trouble for bond funds, because suddenly you can buy bonds with better yields, so a fund of 'old' bonds (with low rates) becomes less appealing ... Hence value floods out of bond funds

    And as bonds and cash savings start paying more interest, stocks become slightly less appealing, and we tend to move money out of them (which could also trigger a panic sell situation)

    Right now the U.S. is one of the most expensive markets in the world - so when the correction comes, it's the US that's most likely to be hit hardest, and take the longest to recover (at least back to these levels) - unless governments pump more stimulus into it, but the fall has to come eventually


    Re: Woodford

    His new fund is outperforming everything - it's about 3% up against the index 3% down (but this doesn't necessarily mean much)

    It's time-scale ... With Invesco Perpetual, you can take any 5 year stretch and find a time it's outperformed or under performed the index ... It's relatively meaningless on that scale

    Since launch, Invesco would've made you about £500k vs about £30k on the index (I should check those numbers, but they're roughly in the region)

    He manages on a long-term perspective (like Warren Buffett) - the holdings in pharmaceuticals and biotech are certainly long-term views (we're getting an ageing population, so while markets may suffer, healthcare may be a good bet) - and he's been good at sheltering capital from crashes

    I own Vanguard Equity Income too - it's a predictably average performer (and not particularly cheap) ... Investment Trusts have trounced just about everything in UK equity Income recently
  • krish123
    krish123 Posts: 165 Forumite
    Eighth Anniversary 100 Posts Name Dropper Combo Breaker
    I too have just put some money into the VG LS 80 Fund and setup monthly saving. You say This is an average performing fund, what exactly is average?


    Will the performance of this fund pick up in the future?
  • Archi_Bald
    Archi_Bald Posts: 9,681 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    krish123 wrote: »
    Will the performance of this fund pick up in the future?


    I'll be back any year now, just popped out to find my crystal ball.
  • Can you help
    Just spent my first £1000 on vanguard 60% this is with Charles Stanley I did this on the 15th Oct when I log in I just get a message saying "Pending order" could you tell me how long it takes to go through.
    Thanks.
    I choose the rooms that I live in with care,
    The windows are small and the walls almost bare,
    There's only one bed and there's only one prayer;
    I listen all night for your step on the stair.
  • ColdIron
    ColdIron Posts: 9,823 Forumite
    Part of the Furniture 1,000 Posts Hung up my suit! Name Dropper
    Two or maybe three days usually
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