Moving away from VLS and home bias

chockydavid1983

Thanks Bowlhead for your latest essay- lots of things I hadn't considered there! :-).
Seems like the funds I've been looking at get me closer to where I want to be but not exactly.

Alexland

Just one comment on Bowlheads explanation - although only half the value of the 6% UK in a global cap weighted fund might relate to the UK economy a small proportion of the 94% overseas share might relate to their UK business arms so the overall true UK might be nearer to 4% than 3%.

EIither way it is a significantly smaller proportion than you are likely to be spending on UK goods and services do to keep things in proportion Vanguard have deliberately given the VLS a higher weighting to make it appropriate for typical UK customers.

As a side benefit it also reduces the exposure to the sterling exchange rate as we enter a period where it has materially devalued and may go further down or up.

Alex

Linton

If you want UK bias the most efficient way to get it is to invest in smaller companies. There is little point in investing in the FTSE100 as the largest companies which dominate the index operate on the world stage. The price of a U.K. share in what you may think is a UK company, such as BP, is determined by comparison with similar global companies using the current exchange rates. So BP is effectively priced in $ and the value converted to £s. You are subject to currency risk anyway.

chockydavid1983

Thanks for your input everybody. I now need to have a think about if I want a 1 or 2 fund portfolio with or without a heavy UK bias or put in more work and research to create a bespoke portfolio.

Alexland

Having spent hundreds of hours spreadsheet modelling ETF combinations trying to get the right balance of UK bias and Asia and Emerging Market exposure without excessive volatility I eventually concluded that VLS have it about right so my entire SIPP is invested in VLS80. Then within my company pension I have a mix of Blackrock equity, cash fund and bond fund to get things overall how I want them.

Good luck with your choices,

Alex

chockydavid1983

Thanks @Alexland, that's interesting. How did you go about figuring out how much UK bias you wanted? I.e. what were your spreadsheets based around?

pinkllama

Lifestrategy funds are supposed to have 25% UK equity. I’ve just looked at the Morningstar X-ray of LS100 and it says UK equity is 23.18. I remember looking a couple of months ago and it was similar.
Previously Lifestrategy funds had 30%+ UK equity and Vanguard reduced it.
Could they be intentionally not re-balancing it with a plan to reduce the fixed UK element again?

Alexland

My spreadsheets were trying to build my desired country and sector allocation using as few ETFs as possible.

The elephant in the room is of course the state pension. So if you have a small personal pension then you might want it with no UK bias...

Not_Me_Officer

Alexland wrote: »

Bowlhead has explained it better than I could!!

Bowlhead has a knack of explaining it better than most people can :rotfl:

Whatever the weather, i'm just glad they're active on this forum :beer:

bowlhead99

pinkllama wrote: »

Lifestrategy funds are supposed to have 25% UK equity. I’ve just looked at the Morningstar X-ray of LS100 and it says UK equity is 23.18. I remember looking a couple of months ago and it was similar.
Previously Lifestrategy funds had 30%+ UK equity and Vanguard reduced it.
Could they be intentionally not re-balancing it with a plan to reduce the fixed UK element again?

According to the portfolio listing at Morningstar (which is consistent with Vanguard's factsheet on their own website), 25.1% of their assets are spread across 3 funds which track UK indexes. (they will always in practice be out by a fraction of a percent from the target because they only get the final values of the underlying funds after they have already stopped subscribing / redeeming from them on a given day).

http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000MLUS&tab=3

Vanguard US Equity Index Acc 19.41
Vanguard FTSE Dev Wld ex UK Eq Idx Acc 19.24
Vanguard FTSE U.K. All Shr Idx UT Acc 18.49
Vanguard S&P 500 ETF 11.79
Vanguard FTSE Dev Eurp ex UK Eq Idx Acc 9.36
Vanguard Emerging Mrkts Stk Idx GBP Acc 7.47
Vanguard FTSE 100 ETF 5.46
Vanguard Japan Stock Idx GBP Acc 5.03
Vanguard Pacific Ex-Jap Stk Idx GBP Acc 2.60
Vanguard FTSE 250 ETF 1.15

So, I don't know how Morningstar do their lookthrough x-ray but at a headline level 25% sounds correct. Lookthrough tools usually have some flaws such as what to do with a holding classified as 'other', and perhaps there is some cash in the underlying UK index funds that has been classified as non UK. Or maybe the xray looks at some companies in the UK index and calls them non-UK because the holding company is registered in channel islands or bermuda or bvi, or perhaps a dual-listed stock like RDShell or Rio or Biliton or Unilever is partly classified as Dutch or Aussie.

I wouldn't get too hung up on a couple of percent, but seeing that they have 25% of their assets in the three named underlying UK index funds I don't think they are subtly shifting the allocation down to 23% on purpose. It's more to do with how morningstar is presenting the data for its Xray tool