Comparing IFA managed portfolio to Vanguard LS60

JohnWinder

Nice results. But do you sack your IFA when your're 'ahead', or do you sack her if she underperforms, or do you persist with any underperformance because underperformance in some years is almost inevitable? What's your 5 year review strategy? I think that's the hardest part of not being 100% in a VLS or equivalent.

Audaxer

enthusiasticsaver said:

Performance varies from -5.06% for the Legal and General UK property feeder account (understandable in current situation and it was suspended anyway until October) to the Baillie Gifford American fund which has done brilliantly at 114.45% for the year.  Strategic bonds have done ok and UK funds average but emerging markets, Japan and the European ones have also done well. 

Well done, a great result, especially the return from the Baillie Gifford American fund. 

Linton

JohnWinder said:

Nice results. But do you sack your IFA when your're 'ahead', or do you sack her if she underperforms, or do you persist with any underperformance because underperformance in some years is almost inevitable? What's your 5 year review strategy? I think that's the hardest part of not being 100% in a VLS or equivalent.

None of the above.  The job of an IFA is to ensure that the investment portfolios are appropriate for the client's circumstances, attitudes and objectives and are constructed from funds selected with due diligence. Whether the portfolio happens to outperform or underperform some index or some other portfolio is very much a secondary concern, if it is a concern at all.

The fact that it has not been difficult to outperform VLSxxx over the past 5+ years says more about those funds than about the fund-picking skills of IFAs or many amateur investors.

csgohan4

Audaxer said:

enthusiasticsaver said:

Performance varies from -5.06% for the Legal and General UK property feeder account (understandable in current situation and it was suspended anyway until October) to the Baillie Gifford American fund which has done brilliantly at 114.45% for the year.  Strategic bonds have done ok and UK funds average but emerging markets, Japan and the European ones have also done well. 

Well done, a great result, especially the return from the Baillie Gifford American fund. 

I think anything BG has had a bull time this year.  

fred246

I was under the impression that a cautious fund would contain cautious investments.

Alexland

Linton said:

The fact that it has not been difficult to outperform VLSxxx over the past 5+ years says more about those funds than about the fund-picking skills of IFAs or many amateur investors.

I think it says more about how stable the market trends have been that it has been possible to repeat winning strategies without needing to call upon the additional diversification that index funds provide. If we were to see rising interest rates and a rotation from growth back to value then a number of the top performing active portfolios could become very unfavourable as they miss out on improved prospects for banks, raw materials, etc.

JohnWinder

Linton said:

JohnWinder said:

Nice results. But do you sack your IFA when your're 'ahead', or do you sack her if she underperforms, or do you persist with any underperformance because underperformance in some years is almost inevitable? What's your 5 year review strategy? I think that's the hardest part of not being 100% in a VLS or equivalent.

None of the above.  The job of an IFA is to ensure that the investment portfolios are appropriate for the client's circumstances, attitudes and objectives

True enough. And I assumed most people are interested in maximising returns for the level of risk they are prepared to take, misled perhaps by the thread title 'Comparing ILA to VLS', and the single original question 'one had better returns than the other, did I miss anything?'

zagfles

Alexland said:

Linton said:

The fact that it has not been difficult to outperform VLSxxx over the past 5+ years says more about those funds than about the fund-picking skills of IFAs or many amateur investors.

I think it says more about how stable the market trends have been that it has been possible to repeat winning strategies without needing to call upon the additional diversification that index funds provide. If we were to see rising interest rates and a rotation from growth back to value then a number of the top performing active portfolios could become very unfavourable as they miss out on improved prospects for banks, raw materials, etc.

Plus of course the UK bias of VLS (for which there are good reasons) which has held back performance. Maybe that will change now that Brexit is almost sorted...

bowlhead99

fred246 said:

I was under the impression that a cautious fund would contain cautious investments.

If a fund or portfolio contains assets whose returns are less than 100% correlated with each other, it will be less volatile than holding either of the assets alone, and therefore more cautious than its most-adventurous holding. That is how 'diversification' works.

So, a portfolio that is billed as cautious-to-moderate could (and arguably, should) still contain a growth fund if the overall aim of the pot is to keep up with inflation while we know that current government bond yields may not provide inflation-equalling returns. No doubt the target allocation has 90% or more of its assets not being in that BG American fund. If the BG fund falls 50%, you would not expect all the other holdings to fall 50% at the same time, and so the whole portfolio would not fall 50%, and so the whole portfolio does not have have the risk of the riskiest fund.

If you look at the make-up of VLS 60 which the OP previously held, Vanguard bill it as 'moderate' risk. The VLS60 has 4.6% of its assets spread across just 4 companies - Apple, Microsoft, Amazon, Alphabet. None of those would be particularly 'cautious' or 'moderate' holdings if held alone - Apple's return has been over 85% for the last year and probably 250% over two, and could drop fast if sentiment or politics changed.  But Vanguard are happy to allow that concentration of high-volatility assets in their 'moderate' fund, while still saying they offer a usefully diversified set of assets.

If OP has (for example), ~9% allocated to BG American, then the factsheet tells us that 52% of that amount (4.6% of overall portfolio) would be allocated to BG's top ten holdings.  So that's 4.6% of the IFA portfolio allocated to ten US-listed companies (including Amazon and Alphabet), while Lifestrategy 60 chooses to allocate 4.6% of its portfolio to just four US-listed companies (including Amazon and Alphabet).

Presumably you are not suggesting that a cautious-to-moderate portfolio should not be allowed to take exposure to Amazon in its pursuit of growth or wealth preservation, and can recognise that a cautious investor may prefer their money spread more broadly than some concentrations one might obtain from the market indices.  As a regular reader, I suspect your consternation is simply borne from your detest of IFAs, causing you to get a bit worked up when someone mentions that their IFA gave them a decent result.

fred246

VLS60 invests 4% in the world's largest companies. BG American has invested in the right horses for this year's pandemic. Is that luck or skill?