Move Vanguard LifeStrategy to Blackock Consensus?

mageliken

I note a few recent changes to both the Vanguard LifeStrategy (abolishment of the dilution levy) and the BlackRock consensus (reduced charges) funds.

I am currently looking to double-down on my investments in my existing VLS holding (split equally between 80 and 100) and to at least some new contributions within a SIPP. I am with Charles Stanley Direct within a S&S ISA currently.

Before I do this, it seems to me that the consensus products are now cheaper to hold than Vanguard's. Should I look to remove funds from LifeStrategy and move everything to consensus, move to consensus only for new funds or stick with LifeStrategy?

Perhaps the biggest thing that strikes me is that LifeStrategy 80 seems to have a major US presence followed by UK, whereas Consensus 85 is predominantly UK followed by UK. For some reason being so weighted just in the UK seems a bit strange, but then again why would being weighted around the same in the US be any better?

My question, in brief, is whether or not it would be worth moving either everything over or investing in BlackRock going forward rather than Vanguard. The question is asked on the basis of the fees, but I am assuming that these are fairly comparable products?

dunstonh

Before I do this, it seems to me that the consensus products are now cheaper to hold than Vanguard's.

Dont forget the L&G mutli-index too. And remember the cost is negligible between all three but the asset make up different.

bowlhead99

mageliken wrote: »

Before I do this, it seems to me that the consensus products are now cheaper to hold than Vanguard's.

How much cheaper? The OCF looks pretty similar to me unless I've missed an announcement that the consensus funds are dropping in price significantly. In any case, 0.1% here or there is nothing compared to the difference you will get in gross performance driven by asset mix.

Perhaps the biggest thing that strikes me is that LifeStrategy 80 seems to have a major US presence followed by UK, whereas Consensus 85 is predominantly UK followed by UK. For some reason being so weighted just in the UK seems a bit strange, but then again why would being weighted around the same in the US be any better?

If you look at the market capitalisation of the worlds global markets, the UK stockmarket makes up less than 10%, while the US is five times that. So if you were looking to exactly follow the world's investible opportunities, like in a FTSE All-world or MSCI World tracker, you would have way more in US than anything else, and wouldn't have very much in your home market.

Vanguard are building a product for the UK market and as such they will take note of what they think their customers want - some home bias is natural and to have around 92% of your assets outside the UK when you are looking to build your assets to (probably) spend the proceeds in the UK, is not a strategy that many individuals follow because they consider that riskier. Investors might prefer to have four or five times greater allocation to their home market than what is implied by global market cap. So Vanguard overweight the UK component and scale everything else down.

They recognise that doing a five times weighting to the UK would be a lot, and that natural desire from investors should be tempered, because the benefits from global diversification is important. So, they ended up at roughly 25% of equities being in the UK. When they first launched the Lifestrategy over here, they had a higher weighting, but dropped it to 25% a while back.

Meanwhile, Blackrock aim to run the asset allocation in line with ABI pension sector averages (thus, "consensus") rather than keeping it static. At the moment, as ever, it is what it is. Unlike Vanguard who say '80% equities', the equivalent Blackrock one is 'up to' 85% and sometimes could be quite a bit lower than 80 or at others could be more. The UK equities allocation at the moment is about a third of the total fund, which makes it even more than a third of total equities (i.e. with the fund also containing bonds and cash).

Blackrock's US/North America component is smaller than would be implied by the size of world markets because typical investors don't just allocate capital based on the size of world markets. So for example, their weightings allocate 3x the amount allocated to North America & US versus Japan, but looking at the world market cap, US is rather more than 3x Japan.

Dunstonh mentions another competitor you shouldn't ignore, the L&G Multi-Index. Probably Multi-index 6 is most comparable with Consensus 85. That suite of funds also use index funds as building blocks, like Vanguard and Blackrock, but also includes an allocation to their direct property fund. Their asset allocation changes over time based on their views. As of a couple of months ago, the factsheet said US was strong underweight, UK equities moderate underweight, emerging markets strong overweight, Asia slight overweight, UK gilts moderate underweight, UK corporate bonds strong underweight, UK properties moderate overweight, etc etc.

My question, in brief, is whether or not it would be worth moving either everything over or investing in BlackRock going forward rather than Vanguard. The question is asked on the basis of the fees, but I am assuming that these are fairly comparable products?

It is impossible to say which one will do better over 20 years and none of the managers seem likely to go bust any time soon, so you just have to look at costs, asset allocation and methodology and decide which you prefer. The costs are all broadly similar so you can rule that out as a major differentiator. Which leaves asset allocation methodology as the difference. You are looking to decide whose asset allocation selection will give the best result over the particular market conditions we experience in the next two decades and it is not an easy question.

From a practical point of view, I don't see any reason to suddenly pull money out of the Vanguard fund and dump it on Blackrock or L&G on grounds of saving a small fraction of a percent in charges. The effect would be to knock down your US exposure quite significantly which may or may not be a good thing but it would certainly have more of an impact than 0.0something% coming off the annual charges. So, if you think your current allocation is 'wrong' and Blackrock or L&G do it better, sure, change it, but not to save something irrelevant in charges. As dunstonh said "remember the cost is negligible between all three but the asset make up different".

Of course, you have several 'pots' of money - ISA, SIPP, existing money, new money. With three different rival products and at least two distinct tax wrappers you can try all three if you like. Fewer funds is easier to monitor though. It will take a couple of economic cycles to see which one delivered a 'better' result so check back here in a couple of decades and let us know what combination you went for and how you got on.

collingbone614

Thanks for the analysis, Bowlhead - detailed and practical as ever.

I was wondering, OP, if you came to any decision on what you will do with your money?

mageliken

Yes thank you to both dunstonh and bowlhead99 for the information - plenty to think about.

I am having some other internal conflict at the moment as I wish to start investing with a pension, and I am mulling over whether or not one of the products we've mentioned are sufficient on their own to hold solely within a SIPP or whether or not I'd be better looking at a Stakeholder/other person pension.

Whilst the pension question as held me up a little, I have continued to invest in both the VLS80 and VLS100 I currently hold within my S&S ISA.

I am now not concerned the fees here, and Bowlead's response has caused me to think more about the makeup of these products. My gut feeling (by which I mean it is not based on anything other than my own uniformed opinion) is that if VLS80/100 is overweight UK at ~25% then BlackRock consensus at ~33% UK equities and L&G 40.65 is considerably overweight? I understand this will appeal to some and which will perform better in the long term is an unknown. For some reason this seems odd to me, but clearly people with far more knowledge than I have a preference for this and so I need to work to understand this better.

The property component of the L&G has sparked an interesting. I am wondering whether or not adding a (UK specific?) property fund (if such a thing exists) to supplement my VLS might be an idea at some stage in the future. Again, I need to work to understand better but it seems like it would be a logical move?

bowlhead's comment about perhaps holding some of everything has really got me thinking! My default personal stance is to think that this is a great idea to average everything out, however I'm also aware of how this would change what I hold significantly. Until I am able to reason the pros and cons of holding more US vs. UK (which is the big question on my mind) then I think I'm unlikely to take this approach.

Of course I then revert to my original point about the pension and SIPP and whether or not holding just VLS over this time frame (I'm 25) is realistic/sensible. Perhaps holding a combination of these (my default instinct might just be the L&G and VLS) which would give me some property and a meet-in-the-middle approach to the makeup of these funds. My understanding is to a greater or lesser extent that Stakeholder pensions are usually a blend of funds? Whether or not I should be holding more equities in a pension product and looking to reduce equities in my S&S ISA to turn it into a fund which could be potentially accessed mid-way between pension age is another thought playing on my mind.

Still much to think about and certainly the case that I'm beginning to realise how much I don't know.

dunstonh

Remember that the L&G is partly active managed. It uses passives but the asset allocation is more fluid to market conditions. So, it can be viewed as a best of both worlds.

I am wondering whether or not adding a (UK specific?) property fund (if such a thing exists)

they exist. Remember that these fettered fund of funds are a collection of single sector funds.

My understanding is to a greater or lesser extent that Stakeholder pensions are usually a blend of funds?

Stakeholder pensions are a bit of a niche product nowadays. Most personal pensions and SIPPs offer better value and better fund ranges. However, all tend offer multi-asset funds which are similar to the VLS, BC and L&G. Admittedly you are investing much higher risk than the typical UK consumer but most have comparable options.

mageliken

Thanks dunstonh, that's useful and leads me to think a VLS + L&G mix could be a good choice. Unsurprisingly this has made me think;

dunstonh wrote: »

Admittedly you are investing much higher risk than the typical UK consumer but most have comparable options.

Are you referring specifically to the 50/50 VLS80 and VLS100 combination or specifically the idea of also using this (or a similar) strategy within a SIPP? I am comfortable with what I am doing at the moment, but I'm deliberating the SIPP versus. trying to select a personal pension option.

bigadaj

In terms of global asset allocation then a truly passive equity only fund would hold nearly 50% in the U.S., many have a bias to their home market which is evident in the funds you're looking at.

The U.S. Has performed well over the last few years, whether this will continue is unknown. Interestingly this point has made me personally question the issue of rebalancing, it's evidently a sensible move in many circumstances, but using the U.S. as an example then undertaking rebalancing over the last few years would probably have reduced returns. The U.S. is still the global powerhouse with the default currency so it would be brave to bet against it.

In terms of asset allocation more generally then dunstonh point about higher risk allocation is correct and sensibly raised. Historically most people have invested in mixed funds which are only invested in say 50% equities, with a result they are lower risk but also lower return.

There are no guarantees in investing. But a higher equity mix should give higher returns, at the cost of increased volatility, so if you don't panic and sell on lows, and have the ability to sell with some flexibility, ie not at a fixed retirement age of 65, but between 60 & 70 for example, then it may well pay off for you.

bowlhead99

bigadaj wrote: »

The U.S. Has performed well over the last few years, whether this will continue is unknown. Interestingly this point has made me personally question the issue of rebalancing, it's evidently a sensible move in many circumstances, but using the U.S. as an example then undertaking rebalancing over the last few years would probably have reduced returns. The U.S. is still the global powerhouse with the default currency so it would be brave to bet against it.

Well, if you have half your money in US and half in rest-of-world, and US goes up by 80% while average of rest of world goes up by 20%... then US is now 60% of your new enlarged portfolio. Which you may or may not want, depending on your views of what will happen next.

If you know those relative performances are going to continue, then you wouldn't rebalance out of the US at all, you should keep letting it ride. Eventually if the performances did continue ad infinitum, the US would be 99%+ of your portfolio. In fact what the heck, if the US is still the global powerhouse with the default currency then why bet against it at all, why not just allocate 99% to the US as soon as it looks like it's going on a good run, because anything else will reduce returns

So sure, if the US is going strongly and you scale back before it becomes 60% of your portfolio, you are reducing returns by comparison to leaving it to outperform. But the reason you're doing that is because you don't have any special knowledge that it will outperform and so it's risky to be sitting there with 60% of your portfolio in something that's just had a good 6-year run and could halve in value within the next couple of years if things take a turn for the worse.

So while 'run your winners' is a popular adage...

'keep pulling profits out of your winners to invest into the next winners' is also a good one. Each geography and sector and asset class will have its time in the sun, but you should avoid overexposure because you don't know whether you will wake up the next morning with a great tan, or terrible sunburn.

dunstonh

Are you referring specifically to the 50/50 VLS80 and VLS100 combination or specifically the idea of also using this (or a similar) strategy within a SIPP? I am comfortable with what I am doing at the moment, but I'm deliberating the SIPP versus. trying to select a personal pension option.

The wrapper is not the risk. It is the VLS80/100 that is high risk. The average UK consumer would fall around VLS40-60. It doesnt mean you should. Just an observation that you are investing much higher than the average person.

bigadaj

bowlhead99 wrote: »

Well, if you have half your money in US and half in rest-of-world, and US goes up by 80% while average of rest of world goes up by 20%... then US is now 60% of your new enlarged portfolio. Which you may or may not want, depending on your views of what will happen next.

If you know those relative performances are going to continue, then you wouldn't rebalance out of the US at all, you should keep letting it ride. Eventually if the performances did continue ad infinitum, the US would be 99%+ of your portfolio. In fact what the heck, if the US is still the global powerhouse with the default currency then why bet against it at all, why not just allocate 99% to the US as soon as it looks like it's going on a good run, because anything else will reduce returns :Dt

So sure, if the US is going strongly and you scale back before it becomes 60% of your portfolio, you are reducing returns by comparison to leaving it to outperform. But the reason you're doing that is because you don't have any special knowledge that it will outperform and so it's risky to be sitting there with 60% of your portfolio in something that's just had a good 6-year run and could halve in value within the next couple of years if things take a turn for the worse.

So while 'run your winners' is a popular adage...

'keep pulling profits out of your winners to invest into the next winners' is also a good one. Each geography and sector and asset class will have its time in the sun, but you should avoid overexposure because you don't know whether you will wake up the next morning with a great tan, or terrible sunburn.

And the answer is......

Edit - I suppose a partial answer is not only rebalancing but continual review of asset allocation. After all as the facts change then so should the opinion and the facts will continually change, or if not the facts then the best approximation of them.