Vanguard LifeStrategy confusion

GangBusters

I'm looking at the portfolio breakdown for the Vanguard LS100 and 19.4% is U.S equity Index Fund which consists of 3,395 stocks. Then it also lists Vanguard S&P 500 ETF with 13.3% of the portfolio but the S&P has the same stocks that the U.S equity Index fund has... So why do they bother to include the S&P when the U.S equity fund already covers those 500 companies, and many more?

The same for the FTSE100, FTSE250 and then the FTSE all share, but the FTSE all share already has the FTSE100 and FTSE250 companies in it...

Basically what I'm saying is with LS funds there seems to be funds which overlap with each other, or am I missing something?

Aminatidi

I don't think you're missing anything - there is some overlap

Thrugelmir

That's how Vanguard achieves it's economy of scale and reduces administration costs. VLS 100 and VLS80 hold the same % equity weightings in the same underlying Vanguard funds. Obviously to achieve an additional 20% equity exposure for VLS100. Additional Vanguard funds need to be added. As you pointed out.

This enables Vanguard to trade on a daily basis from one just underlying fund in each sector. Depending on the volume of purchases and redemptions in each VLS fund. The result can be that Vanguard will trade a minimal amount of the actual underlying securities in the market. As trades internally can be netted off i.e. contra'd. With a cash adjustment made between the VLS funds themselves. 

Hence why there's often a comment that Vanguard is extremely good value in terms of fees but not performance. As Vanguard themselves decide the asset allocation split. That's an active decision of the investment managers. Despite the underlying funds themselves operating passively. Get the weighting wrong and performance could suffer badly. The US market might unexpectedly fall off a cliff for example. 

A hybrid tracker in essence. Far from pure. 

GangBusters

Thrugelmir said:

That's how Vanguard achieves it's economy of scale and reduces administration costs. VLS 100 and VLS80 hold the same % equity weightings in the same underlying Vanguard funds. Obviously to achieve an additional 20% equity exposure for VLS100. Additional Vanguard funds need to be added. As you pointed out.

This enables Vanguard to trade on a daily basis from one just underlying fund in each sector. Depending on the volume of purchases and redemptions in each VLS fund. The result can be that Vanguard will trade a minimal amount of the actual underlying securities in the market. As trades internally can be netted off i.e. contra'd. With a cash adjustment made between the VLS funds themselves. 

Hence why there's often a comment that Vanguard is extremely good value in terms of fees but not performance. As Vanguard themselves decide the asset allocation split. That's an active decision of the investment managers. Despite the underlying funds themselves operating passively. Get the weighting wrong and performance could suffer badly. The US market might unexpectedly fall off a cliff for example. 

A hybrid tracker in essence. Far from pure. 

Thanks for explaining, makes sense now. 

scroogemcduck2

Am I correct in thinking Lifestrategy 80 and Lifestrategy 100 have been underperforming the market since the crash? They seem to have recovered less of their losses than say the S&P 500 has.

badger09

Which market?

eskbanker

scroogemcduck2 said:

Am I correct in thinking Lifestrategy 80 and Lifestrategy 100 have been underperforming the market since the crash? They seem to have recovered less of their losses than say the S&P 500 has.

Are you considering the S&P 500 to be representative of 'the market'?  What allowance are you making for currency fluctuations?  VLS, as with numerous other such products, is simply tracking a range of markets but of course the underlying allocations (as well as strategies and objectives) vary, so naturally there is variation across them, so it wouldn't be a surprise to know that there are comparable products that will be recovering better (and no doubt some worse too) if that's what you mean by 'underperforming the market'.  VLS is known for a high UK bias, for example, so won't benefit from sterling depreciation as much as 'true' global cap-weighted trackers do....

torrence

scroogemcduck2
The actual returns for the S&P will show a bigger fall and recovery than either of those funds. Both funds have fallen less and benefited from a weaker pound, and the LS80 has bonds which did not fall as the equity market did.

scroogemcduck2

Why is the default response on here always about trying make people who ask questions look stupid? Yes, my use of the word 'market' wasn't very specific. On the other hand, I did mention the S&P 500, so I don't think it's impossible to understand what I was getting at. And yes I know those funds are diversified across multiple countries.

Alistair31

scroogemcduck2 said:

Why is the default response on here always about trying make people who ask questions look stupid?

That’s the internet for you.

Thrugelmir

scroogemcduck2 said:

Why is the default response on here always about trying make people who ask questions look stupid? Yes, my use of the word 'market' wasn't very specific. On the other hand, I did mention the S&P 500, so I don't think it's impossible to understand what I was getting at. And yes I know those funds are diversified across multiple countries.

Clarify your question.  Don't misintepret responses. People are here to inform. Markets are simply man made indexes that cover absolutely anything. Worldwide there's some 3,500 indexes.