ETF equivalent of LifeStrategy

mgarl10024

Hi,

I'm with HL for a SIPP, and have been investing in Vanguard's 100% LifeStrategy and would like to continue.

However, http://www.hl.co.uk/pensions/sipp/charges-and-interest-rates has an uncapped 0.45% charge on funds, but a £200 cap on ETFs.

As the value of the SIPP goes over about £44k it occurred to me that I'd be better to swap the 100% LifeStrategy out for a combination of ETFs.

I cannot leave HL as my employer has chosen them as their pension provider under a group SIPP deal.

https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares/portfolio-data shows what the LifeStrategy is investing in underneath, and I can't just replicate that because even that isn't made up of just ETFs.

I've been reading up on investment but am still at early stages. Most books I'm reading say that if you don't know what you're doing (me) then passive index and Vanguard, so I'd need a good reason to move away from them. I'm happy with 100% equities as I'm young enough to weather shocks.

I'm just not sure what combination of ETFs would replicate what I already have, or even if this is a sensible plan.

Any thoughts?

bowlhead99

You could literally just look at the fund factsheet for the vanguard lifestrategy fund you picked and see what index funds it holds in what proportion - eg a FTSE UK all share fund, a US index fund, Japan fund, emerging markets fund, Europe-excluding UK fund etc etc.

There are individual ETFs from a range of providers - including vanguard themselves - for all those regional market indexes. You could just buy 10 different ETFs and "build your own" portfolio instead of buying an off-the-shelf portfolio fund.

The practical issue is that each time the US grows a bit compared to emerging markets or Europe grows a bit relative to the UK, you have to decide if you are happy with that new mix, and if not, what are you going to buy and sell to 'replicate' what vanguard would have done in their fund.

Example, on the last factsheet, the UK equities represent 25% of all the equities in total. However, since October the pound has strengthened against both Euro and dollar. So you might find that at end of November you are over 25% allocated to companies listed on the UK stock exchange, with comparatively less allocated to continental Europe or North America. Are you going to sell a bit of your UK ETF (paying a £12.50 dealing fee) and buy more of the US, Europe, Japanese, Asia-exJap, and EM ETFs and pay all the feeling fees on those? Or just let it ride with a higher concentration in UK listed companies than you started out at?

Vanguard will rebalance internally to their model for free.

Audaxer

mgarl10024 wrote: »

https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-100-equity-fund-accumulation-shares/portfolio-data shows what the LifeStrategy is investing in underneath, and I can't just replicate that because even that isn't made up of just ETFs.

I was surprised to see from the link above that the VLS100 includes some ETFs, as I thought all the VLS funds were made up just of index tracker funds.

As to the question, it would be impractical and very costly to try and replicate the VLS100 with a bunch of ETFs as you would have to rebalance just about every day, or at least on a regular basis, as that happens automatically with the VLS funds.

cloud_dog

But surely the OP could buy two ETFs; all world equity and all world bond (or similar).

It is highly unlikely that the OP would be able to mirror the breakdown percentages exactly for the VLS XX but in all likelihood it would be similar.

I think the main question that would need to be considered is that VLS XX holds a far higher proportion in the UK than any 'all world' fund is likely to hold, i.e. VLS XX 25% (ish) and a all world ETF 6% (ish). For me that's not a deal breaker but it may be for the OP/others.

bostonerimus

Audaxer wrote: »

I was surprised to see from the link above that the VLS100 includes some ETFs, as I thought all the VLS funds were made up just of index tracker funds.

As to the question, it would be impractical and very costly to try and replicate the VLS100 with a bunch of ETFs as you would have to rebalance just about every day, or at least on a regular basis, as that happens automatically with the VLS funds.

The ETF structure can be used for index tracker funds too.

dales1

cloud_dog mentions that all-world ETF (ie VWRL).
Looking at it on HL, the last trade of the day (today) was a buy of £1m at a price 33% above the going rate.
Somebody's employer isn't going to be too pleased.

Dales.

mgarl10024

Thanks for the replies.

I'd considered that I'd rebalance every month with new contributions, but what I'd not thought of (and thanks for pointing it out) is the transaction costs of £12.50 a hit. You wouldn't need many of those to clock up more than the HL fund charge.

My employer is set on HL. I don't mind them, but I feel that their fees are paying for a service which I don't need if buying simple index trackers. It also just seems wrong that with an OCF of 0.22% from Vanguard, HL are charging double (0.45%) for just holding it while Vanguard are doing all the work!

- I wonder if I could find my own SIPP provider that was cheaper and periodically transfer the funds out without closing the HL SIPP. E.g. once a year transfer to cheapSIPPCo while leaving the HL SIPP open ready for the next contributions. That way, I'd not build up a large balance with HL which would attract fees; would not incur transfer out fees (as a Group SIPP doesn't have them); and could keep it simple for the employer.

- Alternatively, acknowledging the home bias of the Vanguard fund, I wonder if there's something more suitable that HL offer. I've always been confused why there is such a bias with the LifeStrategy, and logic says to go for something more representative of the global picture. I just don't have the skills here, and am reluctant to switch from Vanguard as it is so recommended (on here, MMM, jlcollinsnh, et al.).

- Perhaps there's some 'regular investing' type deal for SIPPs where I can buy ETFs similar to what I'm after at a discount when clubbing together with others?

More research required I think. Thanks again.

A_T

mgarl10024 wrote: »

My employer is set on HL. I don't mind them, but I feel that their fees are paying for a service which I don't need if buying simple index trackers. It also just seems wrong that with an OCF of 0.22% from Vanguard, HL are charging double (0.45%) for just holding it while Vanguard are doing all the work!

0.22% is the fee for the fund whoever the platform is. HL then charge an additional 0.45% on top. Vanguard's platform fee is 0.15% but only for ISA and regular account they don't have SIPP yet.

Alexland

I transferred a lump sum from my employer's chosen scheme (which offered limited choice) into a fixed price SIPP and I intend to do it again next year (once the balance has grown again). I leave a bit invested to keep the account open for new payroll contributions. It is sufficient hassle not to be worth doing too frequently.

However I will be in a similar position to you with my LISA as the account balance grows in a few years as none of the LISA providers do fixed price platform unless you hold ETFs, Shares or ITs. I will probably just but a whole world shares ETF and change the fund mix in another account to compensate.

AnotherJoe

You could look at it another way. The LF makeup is arbitrary. There’s nothing scientific and sacrosanct about the 25% UK allocation (and much if that is in effect international companies anyway)

So, an allocation of your own ETFs to a similar % level would be fine and there is absolutely no need to rebalance it every day or even every month to mirror LF simply because whose to say LF is the best or must be followed? There’s an IFA here who posts that their allocations beat LF for example and why shouldn’t they, because the LF makeup follows no scientific or even statistical method to work out what will provide best performance. Obvious if you think about it since 25% UK is far too neat a number.

So, pick your own similar allocation and over time it will track LF roughly the same with an equal probability of being slightly better or slightly worse, but biased towards better since every year you have the advantage of saving the otherwise increasing fee

edinburgher

A_T wrote: »

0.22% is the fee for the fund whoever the platform is. HL then charge an additional 0.45% on top. Vanguard's platform fee is 0.15% but only for ISA and regular account they don't have SIPP yet.

Vanguard have previously stated that this should be arriving in 2018. I have transferred a couple of old work pensions to an interim SIPP with no transfer out fees in preparation