BlackRock launches rival to Vanguard LifeStrategy funds

The_Accumulator

Hi Dunstonh,

When you use the phrase 'risk targetting' what does that mean for you?

For example, from the BlackRock Consensus 85 fund:
"The Fund will aim to have between 40-85% of its investment exposure in equity securities."

How would you describe this feature of the Consensus fund? Would you agree it's not fixed allocation?

What is it you think the MyMap fund gains from its approach? Why is that superior to alternatives?

Simplicity and transparency are states on a spectrum. If one fund's parameters are relatively stable while the other has a wide-ranging remit to change its investments and asset allocation frequently based on the "absolute discretion" of its active managers, then it seems reasonable to me to conclude the second fund is not as simple and transparent as the first, as far as investors are concerned.

I think it's important to know that a fund targeting a volatility range may not do so, especially where that can be conceived of as innovation. I'd be surprised if many Monevator readers aren't aware that historical data doesn't predict the future, so you're right, I wasn't at pains to point that out.

The standard risk profiles you refer to are a regulatory abstraction. To my mind, that's quite different from a fund that's marketing itself as being able to nail a volatility target.

Is that target going to become the overweening focus of the fund? Will the manager's need to hit the correct volatility band come at the expense of cost and return? That would be useful to know, I think, but I couldn't find anything in the published documentation about that. Did you find anything that could clue us in?

I didn't criticise MyMap for its transaction charges. They haven't published any. I just made the obvious point that as active management implies a higher level of transactions, future costs may well bite into the headline OCF advantage. We'll just have to wait and see.

I really don't want to get into a sterile debate about the difference between active and passive. You seem to suggest that Vanguard LifeStrategy is active because some decisions are made about its composition at some point in time. You might as well be telling me that an index tracker based on the S&P 500 is active because there's a committee that makes decisions on the composition of the index.

At some point, you have to draw a line on what counts as 'active' and what counts as 'passive' and then decide which side you want to be on, or whether you're happy to mix and match. Personally, I think that a fund that markets itself like this definitely counts as active:

"The Fund is actively managed without reference to a benchmark meaning that the investment manager has absolute discretion to choose the Fund’s investments and is not constrained by any target, comparator or performance benchmark."

If you think active management is an advantage then you should definitely get on board.

Personally I believe the evidence that active managers as a group do not add value. Therefore I do not see, given what we know at this stage, why I would invest in MyMap versus more 'passive' (or less 'active') alternatives that offer me certainty of asset allocation.

I'd be really interested to know why you think MyMap is going to better than the alternatives.

Thrugelmir

The_Accumulator wrote: »

You seem to suggest that Vanguard LifeStrategy is active because some decisions are made about its composition at some point in time.

Is this not an active strategy?

The funds may invest in financial derivatives, which can cause greater fluctuations in value.

The_Accumulator

Hi Thrugelmir

You'll struggle to find any fund that doesn't include that somewhere in their toolkit. By this reasoning, all funds that might be commonly thought of as 'passive' are not passive.

This is what I mean by the active vs passive debate being a dead end unless there's some common notion of what those terms mean.

You can be reasonably sure of what the Vanguard Lifestrategy funds are invested in because they've published the rules that govern their asset allocation:

https://www.vanguard.co.uk/documents/adv/literature/target-allocation-approach.pdf

Thrugelmir

The_Accumulator wrote: »

This is what I mean by the active vs passive debate being a dead end unless there's some common notion of what those terms mean.

Jack Bogle who founded the concept and of course Vanguard itself had a very clear definition. The new masters of the Universe however seems to be pushing the boundaries into an ever wider terrority. After all it is they that benefit from the amount of funds under management.

london.cidade

i am struggling to find the sign up. where is its login? cant you invest induvidually, as you do on vanguard?

firestone

The_Accumulator wrote: »

Hi Thrugelmir

You'll struggle to find any fund that doesn't include that somewhere in their toolkit. By this reasoning, all funds that might be commonly thought of as 'passive' are not passive.

This is what I mean by the active vs passive debate being a dead end unless there's some common notion of what those terms mean.

You can be reasonably sure of what the Vanguard Lifestrategy funds are invested in because they've published the rules that govern their asset allocation:

https://www.vanguard.co.uk/documents/adv/literature/target-allocation-approach.pdf

Would agree that its splitting hairs over whether a country or region index tracker is passive or active due to how its made up.But surely whether its Vanguard,Blackrock,HSBC,L&G etc when a committee/mangers/number crunchers sit around a table and decide what is going into the fund it becomes active (but very cheap)
Just because VLS may keep the same allocations does not make it passive it just means someone has actively decide what to put in compared to another fund manager and the best way to run it.So its pretty much like any other fund out there,as every so called active fund claims to have the magic "sauce" But even Vanguard have said that they have more UK then they would like but they feel the public prefer their home market and in the future they would like to tweak it down so that's Two active decisions already

The_Accumulator

Decisions like this are being made all the time. If decide your US market tracker is going to follow the S&P 500 instead of the Russell 2000 then you've made a decision. Index firms themselves make decisions on the composition of indexes. The word 'passive' is something of a misnomer when you drill into it.

But the magic sauce of an 'active' fund is the skill of the manager who can pick the correct investments and time trades in order to improve return / lower risk.

If the fund's portfolio is governed by a clear set of rules and isn't changed on-the-fly based on the manager's prediction of future market conditions then it qualifies as passive in my view. That's why VLS is passive by any common perception of the term. If you prefer saying it's less active than MyMap then fine.

firestone

The_Accumulator wrote: »

Decisions like this are being made all the time. If decide your US market tracker is going to follow the S&P 500 instead of the Russell 2000 then you've made a decision. Index firms themselves make decisions on the composition of indexes. The word 'passive' is something of a misnomer when you drill into it.

But the magic sauce of an 'active' fund is the skill of the manager who can pick the correct investments and time trades in order to improve return / lower risk.

If the fund's portfolio is governed by a clear set of rules and isn't changed on-the-fly based on the manager's prediction of future market conditions then it qualifies as passive in my view. That's why VLS is passive by any common perception of the term. If you prefer saying it's less active than MyMap then fine.

Would agree:) at the end of the day we hold Two of the multi index funds in the within family accounts and i think its fair to say that at the end of the day if you can compere on a similar weighting over time the results are pretty much the same no matter how there made up.And to be fair while modern multi asset index funds are cheap & user friendly etc they are no different really (and probably spun out of the idea) of old style pensions or endowments as a mix of assets (maybe missing property in most) which is why VLS is very much like the vanguard targeted retirement funds

Albermarle

However there is clearly a difference between an 'active' manager , who just mainly moves around allocations of tracker funds/ETF's to rebalance the fund, and a true active manager who picks individual stocks etc.
Perhaps the former could be called passively active ?

dunstonh

When you use the phrase 'risk targetting' what does that mean for you?

Same as the regulatory position.

How would you describe this feature of the Consensus fund? Would you agree it's not fixed allocation?

Its not risk targetted. Which is why they have introduced risk targetted funds as its a gap in their provision.

What is it you think the MyMap fund gains from its approach? Why is that superior to alternatives?

They didnt have a risk targetted multi-asset solution. Now they do.

Simplicity and transparency are states on a spectrum. If one fund's parameters are relatively stable while the other has a wide-ranging remit to change its investments and asset allocation frequently based on the "absolute discretion" of its active managers, then it seems reasonable to me to conclude the second fund is not as simple and transparent as the first, as far as investors are concerned.

The VLS funds are relatively stable in asset allocation but not constant.

VLS also has the remit to change allocations at the discretion of the fund managers. They only have to keep the equity content at its chosen level. The underlying assets can move around within that at the managers discretion.

So, both mymap and VLS (and L&GMI, HSBC GS and Architas MAP amongst others) are transparent.

I think it's important to know that a fund targeting a volatility range may not do so, especially where that can be conceived of as innovation. I'd be surprised if many Monevator readers aren't aware that historical data doesn't predict the future, so you're right, I wasn't at pains to point that out.

It is also important to know that a multi-asset fund that is not risk targetted may also move around the risk range and suffer periods of greater volatility.

The standard risk profiles you refer to are a regulatory abstraction. To my mind, that's quite different from a fund that's marketing itself as being able to nail a volatility target.

It is acalled risk targetting. Not risk nailed on.

Is that target going to become the overweening focus of the fund? Will the manager's need to hit the correct volatility band come at the expense of cost and return?

That is normally the case of risk targetted funds. They "typically" aim for 95% of the time or thereabouts.

I didn't criticise MyMap for its transaction charges. They haven't published any. I just made the obvious point that as active management implies a higher level of transactions, future costs may well bite into the headline OCF advantage. We'll just have to wait and see.

The fact they are not known, like many other parts of the mymap funds, makes it difficult to comment. However, you suggested they would be higher than VLS. Yet VLS is higher than the other risk targetted options. So, it is a potential issue but may not be.

I really don't want to get into a sterile debate about the difference between active and passive. You seem to suggest that Vanguard LifeStrategy is active because some decisions are made about its composition at some point in time. You might as well be telling me that an index tracker based on the S&P 500 is active because there's a committee that makes decisions on the composition of the index.

They all have an element of active decisions. How much to hold in each sector. How often to rebalance and with what tolerance. How much to include a home bias (which is actually a significant active decision). The active nature is low on all of them because they all use underlying passives.

Whilst the risk targetted ones are slightly more active, they are all relatively low management in that respect. They are all active passives.

Personally I believe the evidence that active managers as a group do not add value. Therefore I do not see, given what we know at this stage, why I would invest in MyMap versus more 'passive' (or less 'active') alternatives that offer me certainty of asset allocation.

If you prefer the management decisions of VLS to have a home bias and a more rigid asset allocation with less frequent changes then that is your choice. If you prefer a less rigid allocation but targetting a volatility range then that is your choice. Personally, the lower risk end of the scale is better served with risk targetting. Those at the higher risk end of the scale probably better with returns focused versions.

I'd be really interested to know why you think MyMap is going to better than the alternatives.

I don't at this stage as not enough is known about the funds to make an informed decision. I would rather wait and see what the facts are before being critical about them.

However, there is now a good selection of multi-asset funds with underlying passives and there is more to life than Vanguard. It is time to accept that maybe some of the others are now more viable than Vanguard.