HSBC Global Strategy Vs Vanguard LifeStrategy

green_man

fronty wrote: »

Ah, interesting, I had also been looking at the Vanguard Target Retirement funds. Initially I liked the idea of reducing the risk automatically, but I hadn't really thought about the consequences of this because you'd have to stay invested in order to drawdown. So maybe these types of funds are only really suitable for people that want to buy an annuity. I wonder how popular annuities are these days vs drawdown?

Some of the IFAs on here might have a better view on what proportion of people now buy an annuity (since pension fund freedoms were introduced). Reading this forum you might believe that no one takes an annuity, but I suspect this forum isn’t typical of the wider population.

Certainly the Target Retirement/lifestyling type funds were originally designed to lead on to an annuity. You might find having some of your pot in one of these is still suitable if you intend taking 25% lump sum (for example) but for most people who are looking to drawdown I would have thought other options are preferable.

JohnWinder

https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8219/assetCode=balanced/?overview
Is that an ETF like VLS30?

[Deleted User]

green_man wrote: »

Certainly the Target Retirement/lifestyling type funds were originally designed to lead on to an annuity. You might find having some of your pot in one of these is still suitable if you intend taking 25% lump sum (for example) but for most people who are looking to drawdown I would have thought other options are preferable.

Target Date or “LifePath” funds were invented by Donald Luskin in the States. Don’t think they had anything to do with an annuity. Whatever you do with your money, your risks are different as you approach retirement. The idea is simply to design portfolio to best handle key risks, depending on age. In the US target date funds are legislated as a default, and have been for over 10 years.

Thrugelmir

fronty wrote: »

Ah, interesting, I had also been looking at the Vanguard Target Retirement funds. Initially I liked the idea of reducing the risk automatically, but I hadn't really thought about the consequences of this because you'd have to stay invested in order to drawdown. So maybe these types of funds are only really suitable for people that want to buy an annuity. I wonder how popular annuities are these days vs drawdown?

Annuities still serve a purpose. There's nothing magical about drawdown. One can analyse historical data endlessly. The only certainty though is that the future is uncertain. After a long bull run easy for complacency to seep in. As an example, Apple's market capitalisation continues to grow. While profits decline. Never lose sight of the fundamentals.

[Deleted User]

fronty wrote: »

Something else, you'll find the HSBC GS funds in a different category called "Volatility Managed", so if you go looking for them in "Mixed Assets 40-85%" you won't find them. I guess that's a bit of a clue?

Volatiliy Managed, this confuses me, does this mean they will sell the equities when/if the stock market crashes?

Thrugelmir

newbinvestor wrote: »

Volatiliy Managed, this confuses me, does this mean they will sell the equities when/if the stock market crashes?

Top slice holdings when they are considered over valued. A "crash" simply alters the future outlook of companies performance in different ways.

green_man

Deleted_User wrote: »

Target Date or “LifePath” funds were invented by Donald Luskin in the States. Don’t think they had anything to do with an annuity. .

Yes, poor choice of words, I should have said...”were widely used to lead on to an annuity” rather than “originally designed to...”

[Deleted User]

green_man wrote: »

Yes, poor choice of words, I should have said...”were widely used to lead on to an annuity” rather than “originally designed to...”

Just think the concept is solid, whether you buy an annuity at 65 or not. The target date and asset allocation may vary, of course.

There are circumstances when, depending on your personal circumstances, there is no need to increase bond allocation as you get older. For example, if you have 10 mil in investable assets, you should be able to weather the storm even if you are 70. Conversely, if you have 100k, you might as well keep playing because you are going to have to rely on the state either way. If you have plenty of FI then you don’t need bonds at all. And if you a freak with nerves made of iron then all will be well. Still, the idea is a good one for most people.

NedS

Chickereeeee wrote: »

SO both VLS and HSBC GS are OEIC funds, which incur additional charges on some platforms.


Is there any ETF or IT equivalent that could be used, or, if not, some fundamental reason why not?


C

No, but Vanguard do offer a range of ETFs which you could use to construct a very similar portfolio by mimicking the funds in your chosen VLS portfolio. For example, VLS80 holds about 14 funds so you could purchase 14 equivalent ETFs in roughly the same weightings. Returns might not be identical but will be close enough not to worry you.

The major difference will be that you will then need to monitor and re-balance your portfolio to keep it in line with your target asset allocation, and that will have a cost, both in terms of your time and the cost of purchasing and selling ETFs.

So you would need to perform a costs comparison to find out if it is worth the savings you will make on platform fees once you've factored in purchasing and re-balancing ETFs. Whether this proves to be cost effective will likely depend on the platform fees, trading fees, how often you decide to trade to re-balance your portfolio and the size of your portfolio. If you have a very large portfolio on a platform such as HL with relatively high platform fees who also caps fees for ETFs, then it's probably going to be beneficial to manage your own portfolio and re-balance it once or twice per year. That said, with a saving of maybe 0.4% per year, your portfolio doesn't need to underperform VLS by much for any potential gains to be completely wiped out.

EDIT: for an example portfolio of £100,000 on HL with 0.45% platform fees and no fee to buy/sell fund, and a capped £200 fee for ETFs with £11.95 dealing costs per deal.

Fund fees:
£100K in VLS80 fund = £100K x 0.45% = £450pa platform fees

ETF Fees:
Purchase of 14 ETFs to replicate VLS80 = 14 x £11.95 = £167.30
Platform fees capped at £200 = £200
Rebalancing, selling 4 ETFs that have outperformed, buying 4 ETFs that have underperformed = 8 x £11.95 = £95.60
Total for year = £462.90

So it's broadly equivalent in costs to hold and re-balance the underlying ETFs for a £100K portfolio. Larger portfolios will start to see savings.

[Deleted User]

There really isn’t a need to hold 14 (!) ETFs to replicate VLS80. Complexity is bad particularly when there is no need. Lots of options, but here is one:

10% Strategy of Lyxor Core Morningstar UK NT (DR) UCITS ETF. Cost 0.04% or 4 quid, assuming 100k total portfolio
50% Vanguard FTSE Developed World UCITS ETF cost 0.12% or 60 quid
20% Vanguard FTSE Emerging Markets UCITS ETF Acc cost 0.22% or 44 quid
20% SPDR Barclays 1-5 Year Gilt UCITS ETF 0.15% 30 quid

UK equity is being held within two separate ETFs. This is deliberate; IMHO one should be overweight in the home market

Put this in AJ Bell and platform charges for SIPP are 0.25%, capped at 100 quid.

Rebalancing - I am guessing one buy and one sell per year. Total cost 20 quid.

Overall annual cost = 240 pounds; smaller % for larger portfolios. Makes 24 bp, I think. Not bad.

You also benefit vs holding funds which have to pay Stamp duty.