Should I supplement a passive VLS?

ruperts

Nothing wrong with 'tilting' (to borrow a Tim Hale term) a portfolio but I think you have to be clear why you're doing it. I think you could justify the Woodfund fund by saying it's a tilt towards a more defensive allocation, you could justify the addition of EM or smaller companies because they historically deliver slightly higher returns. But I don't think you can justify another US tracker unless you've got a reason to believe that Vanguard's US allocation isn't high enough.

pinkllama

VLS60 consists of;

Equities
US 27.1%
UK 15%
Europe 6.9%
Japan 4.2%
Pacific 2.4%
EM 4.2%

Bonds 40%

As others have said, adding the US tracker & Woodford don't diversify your holdings as US & UK are already your 2 biggest equity holdings.
I understand that you're thinking about tilting your portfolio. Just be sure that you are devising a strategy that you are going to stick to for the next 30 years. Tilting can very easily turn into tinkering. What if you tilt to small cap/emerging markets and one/both bomb over the next few years and you change your strategy and sell? (buy high-sell low)

You could spend the next 30 years agonising over asset allocations. Where as, I feel you want to make the right allocations now and get on with your life.

A suggestion would be to think about just having LS80, then over the years slowly & increasingly add funds to a cheap bond fund such as the Vanguard Global Bond Index one in LS80 or Vanguard's short-term version of the same fund? Alternatively, you could decide to invest in LS80 for the next 15 years then swap over to LS60.

Good Luck

seacaitch

The way this sort of thing tend to works is that following a brutal bear market new investors want to start out with the 'safe' feel of VLS20 or maybe 40 for the adventurous.

After seeing market rise for several years but while still remaining fearful of what they see in their rearview mirrors they'll be transitioning to VLS60 as that "better reflects their risk tolerance".

Several more years later when that historic brutal bear market seems like it was from a different era of little contemporary relevance, stock markets are on a tear and fear of missing out on gains begins to dominate, then initially VLS80 and finally VLS100 will become the only funds of choice for discerning investors who "get it" and are happy to embrace the risk for the long term.

Only for those same investors, formerly "long and strong" near the market highs, to totally capitulate right at the lows once a bear market follows such exuberance, taking its inevitable psychological toll.

Harsh, but very likely true in many cases.

bowlhead99

ruperts wrote: »

I think you could justify the Woodfund fund by saying it's a tilt towards a more defensive allocation, you could justify the addition of EM or smaller companies because they historically deliver slightly higher returns. But I don't think you can justify another US tracker unless you've got a reason to believe that Vanguard's US allocation isn't high enough.

An allocation to Woodford is not just an allocation to defensive, it's also an allocation to the UK, so to use your own phrase "unless you've got a reason to believe that Vanguard's UK allocation isn't high enough..." The UK equity allocation of the lifestrategy funds is 25% of all their equities, while the UK's allocation of global stockmarkets is well below 10%.

Although Woodford's fund has a preference for a highish level of income which can be considered defensive, and indeed there are some sectors he shuns entirely, some of its larger holdings are biotech which is not particularly defensive, held instead for long term growth potential. What you can say is that his returns will certainly diverge from a UK or world tracker. That is the whole reason he is in business and able to charge fees for what he does.

However, as dunstonh mentioned in the very first reply, it is a specialist fund - as is the US tracker - and designed to be held as part of a portfolio with other specialist/ single sector funds to build a custom allocation which works for you. As it overlaps with holdings you already have in the portfolio constructed by professionals to give a decent global allocation, it (and a US tracker) are unlikely to be the exact difference between that professionally researched and constructed multi-asset fund, and the exact portfolio which meets your needs.

Linton

bowlhead99 wrote: »

An allocation to Woodford is not just an allocation to defensive, it's also an allocation to the UK, so to use your own phrase "unless you've got a reason to believe that Vanguard's UK allocation isn't high enough..." The UK equity allocation of the lifestrategy funds is 25% of all their equities, while the UK's allocation of global stockmarkets is well below 10%.

Although Woodford's fund has a preference for a highish level of income which can be considered defensive, and indeed there are some sectors he shuns entirely, some of its larger holdings are biotech which is not particularly defensive, held instead for long term growth potential. What you can say is that his returns will certainly diverge from a UK or world tracker. That is the whole reason he is in business and able to charge fees for what he does.

However, as dunstonh mentioned in the very first reply, it is a specialist fund - as is the US tracker - and designed to be held as part of a portfolio with other specialist/ single sector funds to build a custom allocation which works for you. As it overlaps with holdings you already have in the portfolio constructed by professionals to give a decent global allocation, it (and a US tracker) are unlikely to be the exact difference between that professionally researched and constructed multi-asset fund, and the exact portfolio which meets your needs.

Exactly! This is the problem I have with Woodford. It's so idiosyncratic that its difficult to see how one's portfolio could have a gap that Woodford could fill. But it's insufficiently diversified to act as a stand-alone investment.

greenglide

It's so idiosyncratic that its difficult to see how one's portfolio could have a gap that Woodford could fill.

But strangely people with £9.33bn find it a place to invest with a yield of 3.4%!

He certainly knows how to play the game. It can't all be DIY investors can it?

munkee_saver

Thanks for all of the valid input. As mentioned in my original post, the initial jump to funds outside of VLS60 and the additional research made me question the whole reason for adding those funds (plus maybe some others) in the first place. It was becoming slightly less muddied for me realising I was essentially trying to build my own custom portfolio of funds which at the end of the day VLS had already done for me, in no doubt a much better way (especially thinking about the lack of rebalance worries even if its just done automated).

I've decided to drop the L&G and Woodford funds and consolidate back into VLS60. I could choose to run funds into VLS80 for the gains but I think I'm safer (if possible to be) with the 40% bonds. With that being said, is the representation of Bonds in VLS safe? I've noticed a few blogs recently mentioning the "bond bubble". I assume this would matter more on a self created portfolio rather than the allocations in VLS but wondered if anyone has an opinion on this?

pinkllama

munkee_saver wrote: »

is the representation of Bonds in VLS safe? I've noticed a few blogs recently mentioning the "bond bubble". I assume this would matter more on a self created portfolio rather than the allocations in VLS but wondered if anyone has an opinion on this?

basically bond prices generally go down when interest rates and/or inflation goes up, or there's an expectation that either will go up.

the longer a bond has to maturity, the more it will go down with an increase in interest rates/inflation.
if you look at the factsheet for Vanguard Global Bond Index, you'll see a duration of approx 6.7 years. i'd guess that all the other bonds in LS60, averaged out would be similar.
this figure basically means that for every 1% increase in interest rates the bonds will lose 6.7% of their value.

it's not all bad, as bonds mature, they are cashed in and new bonds paying a higher interest rate are bought. so over the long term a bond fund will be 'self healing'. the lower the duration, the shorter the time to make up for the loss caused by the interest rate rise.

munkee_saver

Based on interest rates being so low and assuming I'm going to be holding on to this for the long term e.g. potentially 30 years then does it make sense to move towards a vls80 minimising bond allocation? They can only realistially move upwards but that could be a long way off.

munkee_saver

I mean interest rates can only realistically go up that is.