Stay will my two trackers or transfer to Vanguard?

Mike12421

Hello,

I hold a HL Vantage Stocks & Shares ISA with Hargreaves Lansdown, which is made up of the following two trackers;

Legal & General International Index Trust (Class C - Accumulation)
&
Legal & General UK Index (Class C - Accumulation)

I pay in £333 each month, which is then roughly devided between the two Trackers.

My question is, I am after a tracker that I can pay into, covers a wide variety of markets, leave alone for a number of years and be confident that it is being managed correctly.

I have read about the Vanguard LifeStrategy Equity Trackers and was wondering if I should just pay into that instead, specifically the 80% Acc. It is around the level of risk I'm prepared to take over a 25 year period, and hope that this will be sufficient time to weather the overall turbulence of any hiccups.

What are people's thoughts of the Vanguard 80% compared to the two Trackers I currently have? Is HL the best overall in managing this for me, as I have little knowledge about all this and I want them to manage it for me with the best return I can get.

Come April 2017 I will be converting to a LISA and hope that whatever Tracker I am investing in can be transferred over.

I don't know if I've missed the point completely, but I wanted to ask here as I've always been given sound advice on this forum.

Regards.

bowlhead99

At the moment you are allocating your assets on a tracker basis (i.e., weighted heavily to the largest companies in the two markets) and roughly splitting your total allocation 50:50 between UK and international, while being 100% in equities.

That is quite a high bias to the UK considering that the UK index makes up less than 10% of world equity markets and is heavily weighted to certain industries - eg oil /mining, banking/ financial services and big pharmaceuticals, while it's missing companies like car manufacturers, Microsoft / IBM/ Google, Apple and Samsung etc.

If you like, you could continue allocating on a tracker basis within countries, but with a more broad allocation between regions and a lower bias to the UK (but still a bit), by using something like the VLS 80 as you suggest, or similar cheap passive multi-asset funds like Blackrock Consensus 85 or L&G multi-index 6.

They all come in different "numbers" for different levels of equity exposure, and have some sort of methodology of their own devising for allocation between trackers for different regions. They could feasibly be your portfolio or the core of it for years to come, so long as you are happy with the potential overall volatility as they track global markets up or down (-40% in a year wouldn't be unheard of)

As an alternative to the cheap and cheerful multi-asset funds built on trackers, there are plenty of actively managed options. For example RIT Capital Partners PLC is an investment trust with an international portfolio which includes public and private equities, bonds and property. It is actively managed and therefore more expensive, with the intention that it delivers a better return profile in terms of risk and volatility even taking into account its running costs.

There are lots of choices. You could even split your £333 into 5x £55 one month and 5x £55 the next to invest across 10 separate funds yourself, but then you'd have to manually rebalance between them from time to time which is a headache and so buying a single multi-asset fund is more useful.

With a 25 year drip feed, each pound of your assets would be deployed for over 12 years on average, though the money deposited in 2040 only has one year before the time is up so you would probably want to reconsider your asset mix as time goes on.

As an aside, VLS and its rivals are cheap on a percentage basis but HL as a platform provider is expensive. You'd be paying 0.1-0.3% to the fund manager and 0.45% to the platform for administering your account. At the £5-10k level of investment this is fine, but at £100k the high platform fees represent a few hundred quid of charges you could avoid by moving elsewhere.

HL have a good reputation for quality of service. If you only intend to hold one fund and add every month or every quarter you are hardly making much use of their customer service department, research/ marketing articles, or shiny website. You really don't need a smartphone app and glossy quarterly bulletin to tell you that your fund still exists and you just added £333 to it by direct debit.

So, maybe provider choice is something to consider when you get your LISA, if the amounts are not already large enough to bother shopping around.

princeofpounds

That is quite a high bias to the UK considering that the UK index makes up less than 10% of world equity markets and is heavily weighted to certain industries - eg oil /mining, banking/ financial services and big pharmaceuticals, while it's missing companies like car manufacturers, Microsoft / IBM/ Google, Apple and Samsung etc.

A certain amount of home bias in an investment allocation actually makes a lot of sense.


That is because of asset/liability matching; if you plan to live in the UK long-term, more of your future liabilities are denominated in GBP and related to the state of the UK economy. So you reduce the risk of your assets mismatching your liabilities by weighting the allocation. The job of a personal investment portfolio is not necessarily to match global growth, it's to meet personal objectives.


Having said that, it's fair to say that the UK index is not especially related to the UK, although the distortion towards commodity companies has lessened as those have become a smaller part of the market.


I would say to the OP that there isn't likely to be a vast difference between those two trackers and a third tracker.


- Presumably the fees are all low and similar (but worth checking - as pointed out platform fees matter too).
- Having an international index and a UK index is not going to give a vastly different outcome to a global index in reality.
- If this was a pension portfolio or a large investment portfolio I would definitely encourage greater diversification across asset classes,. capitalisation range (FTSE 100 trackers typically a bad idea of the long term compared to FTSE All-Share or similar) and I would also encourage a wider spread of geographies (a modest EM allocation, for example - global indexes typically underplay this asset class given their bias towards free float market cap weighting).


But frankly this is a modest portfolio in an ISA. The sort of decisions the OP is considering is a bit like choosing a Big Mac vs. a Burger King Whopper. There might be differences but you are still more or less likely to be getting a burger.


Get your market access low cost and with a half-sensible asset allocation, and that is 80% of the battle.

bowlhead99

Good analogy with the burgers. FWIW I consider the BK ones to have a better flavour profile

For the funds being invested with a 20+year time horizon, I agree with increasing the EM allocation (which at present, if the L&G Intl index is only 50% of the total, would only be <2.5% of the portfolio, whereas would be over >5% with a VLS80).

The VLS has 25% of its equities (20% of total portfolio) in UK listed equities which is a useful "home bias" compared to global market size but not as significant as the 50% currently held.

Prince of pounds is right that home bias is useful but in two decades you will probably still be buying your computer software with a Chinese or Indian cost base and your smartphones with a Korean cost base and movie streaming with a US cost base and your washing machines with a German cost base etc. So global assets and incomes are useful as probably the UK isn't going to be top or dead last in a ranking of economies. Your UK-only costs are probably housing and you might already be planning to address that by buying one.

The greatest differentiator of performance over 2.5 decades at £4k a year is asset allocation and not a fraction of a percent of fees, so although the multi asset funds are more expensive than two single-index trackers, I feel that a multi asset fund from whatever fund manager is a better bet than the simplistic 50% home index and 50% away index.

Others of course will disagree.

bigfreddiel

What has prompted this question? Are you unhappy with your current returns? Do you think your portfolio could do better? If so better than what? And final question, what are you investing for? House purchase? Retirement? Uni fees?

There are more questions, but in my experience, decide on your goal, decide a strategy to achieve it and stick with it. Don't be tempted to chop and change due to random noise in the market.

Cheers fj

BLB53

I have read about the Vanguard LifeStrategy Equity Trackers and was wondering if I should just pay into that instead, specifically the 80% Acc. It is around the level of risk I'm prepared to take over a 25 year period, and hope that this will be sufficient time to weather the overall turbulence of any hiccups.

I like this Vanguard LS funds and hold their LS60 in my ISA and LS40 in my SIPP.

The main things to get settled are allocation between equities and bonds - with 25 yrs to invest, I would agree the LS80 sounds like a reasonable choice.

Then there is weighting between UK/global. The LS has quite a high weighting of 25% UK but it would be only half of your present allocation with L&G so maybe that would be OK.

Finally charges - what is the total cost of holding your funds with HL - i.e. platform charges of 0.45% plus fund charges?

I hold my ISA with Halifax Share Dealing with a platform fee of £12.50 p.a and the Vanguard LS charges are 0.24%. The total comes in just under 0.30%. Obviously this is less than HL platform fee alone.

Mike12421

Thank you all so much for all of the advice, you certainly sound like you know what you are talking about. I had to read your posts several times before the information started to sink in, however I was immediately on the same page when you started talking about food.

Overall I am after a good solid tracker (if there is such a thing) that I can just keep adding too each month for the next 25 years and it will take care of itself. I want to leave it alone and not do anything to it such as re-balancing etc, I’ll leave that to the experts.

It's not that I'm really happy or unhappy with my two trackers to be honest, but after several months of holding them and reading these forums, I have seen very little mention of the Legal & General funds and a lot of talk of the Vanguard (whether that be a good thing or a bad thing). So I thought I would post another question so that I can finally cement my investment for good and leave it alone until I retire.

The reason I chose the VLS80 is that on a scale of 1-10 regarding risk I am prepared to accept, 7-8 was roughly the region I was happy with. I wanted something that is a bit more of a gamble than my money just sat there for the next 25 years, whilst at the same time having a little excitement with the investment, however I’m not sure if I can stomach the full VLS100 at this time.

Looking on the HL site, I can see the following charges regarding each of the three funds;
*Legal & General International Index Trust (Class C - Accumulation)
Ongoing charge (OCF/TEF) – 0.13%
Ongoing saving from HL – 0.05%
Net ongoing charge – 0.08%

*Legal & General UK Index (Class C - Accumulation)
Ongoing charge (OCF/TEF) – 0.10%
Ongoing saving from HL – 0.04%
Net ongoing charge – 0.06%

*Vanguard LifeStrategy 80% Equity (Accumulation)
Ongoing charge (OCF/TEF) – 0.24%
Ongoing saving from HL – 0.00%
Net ongoing charge – 0.24%

On top of all this, HL charge an annual 0.45% on the first £250,000 of funds.

Compared with Cavendish, those charges look like;
Annual management charge (AMC) – 0.24%
Total expense ratio – 0.24%
Cavendish ongoing charge – 0.05%
Service fee – 0.20%


To be honest I have read multiple posts regarding HL being quite expensive. The reason I went with them in the first place was for peace of mind. You are certainly right, I don’t need the app or fancy website etc, I was just after a company with a proven history and HL seemed to come out on top. I am certainly prepared to move to another platform however. Any suggestions would be greatly appreciated as when I have looked Halifax and Nutmeg have both shown to be promising but as I’m no expert, I don’t know what hidden charges there may be.

I certainly value everyone’s advice and so if you were me and had £333 to invest each month in to an ISA for the next 25 years so that when I’m 60 I have a little (hopefully a lot) more money for retirement, what choices would you make? I’ll certainly post again in 25 years and let you know how I got on. :rotfl:

Lastly, as a side question, in the unlikely event that a platform (ie HL) were to go bust, I take it my ISA fund / tracker shares etc would be protected and still valid. I take it that HL are just the ones managing them for me and so I could just transfer them to another platform?

Thanks again for all of the advice, hopefully you won’t start charging me.

Regards.

racing_blue

It sounds as if you are looking to de-risk a little from 100% equities to 80% equities? I have often heard it said that this strategy expects similar returns with lower volatility.

VLS80% would seem like a really elegant way to achieve that. Simple and effective.

Sadly many of us (me included) don't have the intelligence and/or discipline to take this approach, and need to meddle.

BLB53

Any suggestions would be greatly appreciated as when I have looked Halifax and Nutmeg have both shown to be promising but as I’m no expert, I don’t know what hidden charges there may be.

Halifax are OK for lump sum above say £25K but their dealing charges for sale/purchase are £12.50 (check the frequent dealing fee ~£2).

Either Cavendish or Charles Stanley Direct could be more cost efficient as there would be no fee for monthly purchase of VLS fund.

Mike12421

I've just been looking on the Charles Stanley site and found these charges. Compared the the above posted HL charges for the same VLS80 fund, CS looks a lot more appealing.

CS Annual Platform Charge:
*Funds
0.25% (charged pro-rata monthly in arrears)

*Stocks & Shares
0.25% (minimum of £20, maximum of £150 per annum, charged pro-rata six monthly in arrears)

CS Dealing Charges:
*Fund Trading - No charge

*Online Stocks & Shares trading - £10 per trade

Have I got it right that HL charge 0.45%/per annum whilst CS charge 0.25%. Also, am I right in thinking that the £2/month charge is because of VLS80 and would be charged no matter what platform I used. Lastly, HL charge a fund trading charge each month of their own on top of the £2, however by looking at CS they charge nothing.

On a side note, HL want a total of £50 + VAT to transfer my ISA to another platform.

Do all this figures look right or have I got my wires crossed. If they look correct I'll push ahead and transfer to CS, unless there are any negatives anyone wishes to share.

Regards.

bigadaj

Yes, all pretty much right but csd don't charge the £2 a month, so should be much better value.