Vanguard UK Dividend Fund?.

dutchism1958

Morning All,

I am wondering what others think of this fund which I am looking at as a way of creating additional income from dividends.
I have checked on Trustnet etc,and while the last 3-5 years have been good,the last few months have seen a drop,partly,say Trustnet due to it's weighting in Oil/Mining companies.
I have a Vanguard LS 60% and a small cap and thought this could be a good addition.
Any advice greatly appreciated.
Gary.

dunstonh

I have a Vanguard LS 60% and a small cap and thought this could be a good addition.

Why do you think that breaking a researched structured allocation is a good idea?

Is your research better than Vanguards?

dutchism1958

No,I'm not saying that!.
I am asking the question whether it would be a good addition,plain and simple.
You obviously don't think so.

bowlhead99

What he is saying is:

You bought a fund which allocates your money across large company shares from all the regions of the world and some bonds, and then you bought a second fund that gave you small companies from all the regions of the world and no bonds. So you now have a portfolio which is allocated across shares from all the regions of the world and some bonds (less than 40% now because your second fund didn't have any bonds in it).

The regional allocation of the VLS fund is weighted to the UK (i.e. the UK stock market is only 8-9% of the entire world's economy but the VLS fund has 25% allocated to the UK stockmarket) ; but the smallcap fund is not specially weighted to the UK.

So when you put the two funds together as you have, your UK allocation is somewhere between the 8-9% and 25% depending how much of the smallcap fund you bought, and your bond allocation is somewhere between the 40% and 0% depending how much of the smallcap fund you bought.

So your allocation at the moment is not quite the same as the balanced multi-asset fund that Vanguard gave you 'right out of the box' with the VLS60 but it may not be too far off if you didn't buy too much of the smallcap fund.

Now you are wondering whether you should buy another fund which only invests in UK companies which are the particular type of company that dividends rather than growth (Vanguard using a computerised formula to filter out which ones pay a high level of dividends compared to their share price).

All of the companies in the UK Dividend fund will be companies you already have in either the VLS60 or the global smallcap fund or both. What Dunstonh is saying is that by buying more of these UK companies and not buying any more of any companies from the other 90% of the world's stock markets and not buying any more bonds, you will be further breaking the "researched structured allocation" which you bought via the VLS fund that you started with.

You might decide that you know best and the overall VLS allocation to the UK was lower than you wanted and the allocation among UK companies should be much more based to which ones happen to pay high dividends rather than solely which are the biggest companies. In which case, buy the UK Dividend Fund as well as what you already have.

However, the UK Dividend Fund is a specialist fund that invests in one type of company on one stockmarket. Therefore, building a balanced portfolio using it as one of the building blocks, requires you to buy many other specialist funds that incorporate the other types of company and all the other stockmarkets. So someone using it as one of the building blocks might end up with 10+ funds to cover everything, and rebalancing the allocations from time to time - instead of just buying one multi-asset multi-region generalist fund like the VLS60.

Buying a VLS60 and then slapping one specialist single region fund on the side of it is clearly going to distort the portfolio that VLS60 was trying to give you, but there is no reason why you shouldn't do it if you think you want to do it. It's not illegal or anything

It is just worth thinking about why you want to do it, because if you are just buying every fund that you think has potential to give you a decent return, you will be buying thousands of funds and you're unlikely to come up with a portfolio that's balanced.

dutchism1958

Bowlhead,

Thank you for taking the time to reply in such detail(as usual) it is much appreciated and I understand what you are saying.
I appreciate it must be frustrating when people with a wealth of knowledge read questions like I have asked, but that is how we learn.
Thanks for your patience.
Gary.

bowlhead99

Don't worry, there's no such thing as stupid questions.

Just stupid people

dunstonh

No,I'm not saying that!.

When you break the asset allocation on a structured multi-asset fund, you are effectively bringing in management decisions suggesting that you think you know better.

I am asking the question whether it would be a good addition,plain and simple.
You obviously don't think so.

I asked you why you thought it was a good idea. Bowlhead has given one of his many excellent responses as to why it isnt.

Breaking allocations and having a core and satellite approach is something some do. Typically by looking for areas that the VLS is weak in. However, ideally it should be done on the basis of knowledge, understanding and research.

One limitation of the VLS is its fixed structure. Its not as fluid as say the L&G Multi-index. So, it could be argued that having some management decisions in there could be a good thing. However, do you know enough to make such decisions....

Personally, I don't like mixing and matching multi-asset and single sector. I prefer one or the other. If I do use single sector funds, I built it to allocations that are structured from data I have bought in. I would not pick random allocations as, despite 20 years investing history, I do not have the ability or resources to decide which allocations are best.

Investing is about opinion. There is no best solution. There are wrong ways but even the wrong way can get lucky for a period. One important thing about investing is to know your limitations on knowledge, resourcing of information and not make decisions on a whim in areas that you are best leaving to others.

dutchism1958

Thanks for your reply Dunstonh,

In no way am I suggesting I know better than the experts,in my limited knowledge I was asking a question whether this would be an option.You have taken it the wrong way.
I understand what you are saying and following Bowlheads and your responses will make a better informed decision, so thank you for your help,it is appreciated.
Gary.

ChesterDog

Dunstonh hasn't taken it the wrong way.

He has simply got straight to the salient point.

Imagine you were in charge of investing someome's else's money rather than your own: those are the very direct questions you would be expected to provide answers to. Doing it with your own money, you deserve no less a critique from yourself.

You misinterpreted his directness as criticism. Rather, it was meant to make you think.

(Which, guided by the further replies, it has.:))