Comparing IFA managed portfolio to Vanguard LS60

Mothman

A quick search on Trustnet ranks VLS60 in 16th out of 114 Multi asset funds with 5yrs performance in the 40%-85% & Volatility Managed sectors and a risk score between 40-60 (VLS60 risk =51). Most of the funds above it have a risk  score over 51 and the few I checked had a higher proportion of equities. 5yrs is too short a time frame to draw any meaningful conclusions but so far VLS60 appears to be doing OK compared with the majority of it's peers which surely is what it should be compared against.  I'm not sure anyone buying a basket of index trackers would expect it to shoot the lights out.

Fair play to the original OP if they have found an IFA who has been able to deliver stellar performance over the past year without taking on additional risk, lets hope they  can out perform over the long term.

aroominyork

IanManc said:

aroominyork said:

Everything is an active decision. Choosing a market cap weighted index, instead of an equal weighted index, is an active decision.

VLS isn't a passive fund. It doesn't follow an index. It is a tied fund of funds, where the proportions of the investments in tied funds are chosen by active decision, and those proportions have been changed over time. The proportion invested in the UK is now considerably less than in the past.

VLS100 is now 20%-21% UK. It was closer to 25% not long ago, wasn't it? Did they publish a rationale for this change?

IanManc

aroominyork said:

IanManc said:

aroominyork said:

Everything is an active decision. Choosing a market cap weighted index, instead of an equal weighted index, is an active decision.

VLS isn't a passive fund. It doesn't follow an index. It is a tied fund of funds, where the proportions of the investments in tied funds are chosen by active decision, and those proportions have been changed over time. The proportion invested in the UK is now considerably less than in the past.

VLS100 is now 20%-21% UK. It was closer to 25% not long ago, wasn't it? Did they publish a rationale for this change?

There's an article from 2014 about the reduction from 35% to 25%:

Vanguard slashes UK exposure in LifeStrategy funds - FTAdviser.com

And this article from 2018 says the following:

"The funds also have a UK bias. While the UK makes up around 6% of global stock markets, 25% of the stock market portions of the Vanguard funds are allocated to the UK. However, Vanguard plans to reduce that over time.

A spokesperson for Vanguard said: ‘Investors often prefer to hold more in their home market. Over the past few years we have been gradually reducing this tilt in the fund range."

Understanding Vanguard LifeStrategy funds and how they work | Shares Magazine

So it appears to be a long term strategy.  🙂

Thrugelmir

aroominyork said:

IanManc said:

aroominyork said:

Everything is an active decision. Choosing a market cap weighted index, instead of an equal weighted index, is an active decision.

VLS isn't a passive fund. It doesn't follow an index. It is a tied fund of funds, where the proportions of the investments in tied funds are chosen by active decision, and those proportions have been changed over time. The proportion invested in the UK is now considerably less than in the past.

VLS100 is now 20%-21% UK. It was closer to 25% not long ago, wasn't it? Did they publish a rationale for this change?

Be driven by the benchmark index which is the ~ MSCI ACWI NR USD.

Every six months or so the fund will be rebalanced to reflect the status quo. 

bowlhead99

aroominyork said:

IanManc said:

aroominyork said:

Everything is an active decision. Choosing a market cap weighted index, instead of an equal weighted index, is an active decision.

VLS isn't a passive fund. It doesn't follow an index. It is a tied fund of funds, where the proportions of the investments in tied funds are chosen by active decision, and those proportions have been changed over time. The proportion invested in the UK is now considerably less than in the past.

VLS100 is now 20%-21% UK. It was closer to 25% not long ago, wasn't it? Did they publish a rationale for this change?

Likely just a mistake on your part. AFAIK, they are still at 25% of equities being UK stockmarket, for all their UK Lifestrategy products, and have not announced a change since they moved from the original 40 at launch to 25 by 2014.

The most recent factsheet is for November (as December hasn't finished yet) which is at LifeStrategy® 100% Equity Fund - Accumulation (vanguardinvestor.co.uk)

That shows
19.3% in Vanguard FTSE UK All Share Index Unit Trust
4.7% Vanguard FTSE 100 UCITS ETF
0.8% Vanguard FTSE 250 UCITS ETF

Give or take rounding, that's the 25% as expected.  I suspect you overlooked the FTSE100 ETF and only noticed the other two funds adding to 20-21%ish.

Audaxer

Much is being made of the UK bias of VLS funds compared to other multi asset funds. However I see that the 3 year annualised returns of VLS60 is 6.60% which is almost exactly the same as HSBC Global Strategy Balanced with 3 year annualised returns of 6.63%. This is despite the HSBC fund having a much lower UK equity percentage and slightly higher overall percentage of equities (65%) than VLS60.  

zagfles

Audaxer said:

Much is being made of the UK bias of VLS funds compared to other multi asset funds. However I see that the 3 year annualised returns of VLS60 is 6.60% which is almost exactly the same as HSBC Global Strategy Balanced with 3 year annualised returns of 6.63%. This is despite the HSBC fund having a much lower UK equity percentage and slightly higher overall percentage of equities (65%) than VLS60.  

Then there's clearly other differences between the two funds which offset the UK lag. There's no doubt that UK equities did worse than global equities over the last 3 years, so a fund with a UK bias and similar asset allocation to another fund without that bias must have done better in other aspects.

Thrugelmir

Audaxer said:

Much is being made of the UK bias of VLS funds compared to other multi asset funds. However I see that the 3 year annualised returns of VLS60 is 6.60% which is almost exactly the same as HSBC Global Strategy Balanced with 3 year annualised returns of 6.63%. This is despite the HSBC fund having a much lower UK equity percentage and slightly higher overall percentage of equities (65%) than VLS60.  

Exchange rate reversal, today at $1.35. May see £ - $ edge over $1.40 in 2021. A level not seen for nearly 5 years. 

bowlhead99

Audaxer said:

Much is being made of the UK bias of VLS funds compared to other multi asset funds. However I see that the 3 year annualised returns of VLS60 is 6.60% which is almost exactly the same as HSBC Global Strategy Balanced with 3 year annualised returns of 6.63%. This is despite the HSBC fund having a much lower UK equity percentage and slightly higher overall percentage of equities (65%) than VLS60.  

25% domestic listed / 75% overseas listed within equities is not a massively 'high' UK allocation compared to typical portfolios and the type of mixed asset products that Vanguard was competing with when it set its home/away balance some years ago. Other products such as L&G Multi-Index or Blackrock Consensus were in a similar ballpark for their medium risk funds ; and it wasn't uncommon to see all sorts of UK medium-risk investors, whether using off the shelf products or DIY or IFA, having 20-30%+ of their equities being UK ones. Having 80-95% overseas might be seen as something for the higher end of the risk scales (e.g. the 80%+ equity levels).

However, when looking at how people build their allocations, some commentators felt that Vanguard's cheap and cheerful approach to do all its allocations within a region by index (as distinct from other multi-asset / multimanager / products or portfolios with more active allocations) meant that 25% UK did appear a relatively high ratio -  because their method of UK equity allocation was through the All-Share index, which is mostly the FTSE100, and it had long been discussed that the FTSE100 did not represent a very broad or diverse cross-section of UK listed companies (compared to the allocation one might get in a managed UK fund which applied some human overlay to the company or industry concentration ratios).

The constant 'warning' or 'pet peeve' from some on this board that a quarter of your equity allocation to the UK a la VLS 'is far too artificially high' is a bit overplayed and seems a bit wide of the mark; perhaps the nuance is just that a quarter to the UK is high if you're doing it by index as this gives a fifth of your equities in the FTSE 100, and the non-diverse nature of that particular set of companies has been highlighted for the last decade or more as not being a great characteristic.  Die hard index fans would say using the All-Share for UK allocations is fine of course, but die hard index fans wouldn't countenance as much as 25% in the UK, so they don't support VLS much either, other than agreeing it is better than using even more active funds.

In the last few years (firstly with favourable fx movements from 2016 and latterly with covid impacts) the US has clearly with hindsight been a better place for UK investors to obtain their returns, which has only increased the clamouring from some anti-VLSers to dump VLS and its terrible fixed biases.  For many however, it's still a reasonable way to get broad exposure to markets if you want something cheap and don't know what you're doing or don't want the hassle of building your own portfolio, and it will find fans especially among those who don't 'trust' a fund manager to use a more fluid allocation to maintain a target volatility level over the course of an economic cycle, because they've heard somewhere that fixed allocations are simple and best.

There are several ways to skin a cat of course. VLS has a fixed 75% overseas allocation within its equities and hedges all its global bonds to GBP.  L&G Muliti-index or Blackrock Mymap or Consensus will be more fluid, either following a volatility target for the former or an institutional market consensus with some overlays for restricting levels of equities in the case of the latter.

HSBC Global Strategy goes for the target volatility approach, but rather than paring back the exposure to overseas stocks vs a global index as Vanguard does, they hedge the currency position on a portion of the overseas stocks instead. This can help them stay in a volatility range compared to what the global indexes would deliver, while still using global underlying instruments. But you shouldn't mistake their published allocations for an image that they are effectively following a global index for their equities, because actually they are carrying out a relatively undisclosed level of hedging on both the equities and bonds to help maintain their target exposures, which you can only estimate with hindsight by examining the results or reports after the fact. And the level of bonds (or types of bonds) vs equities and other stuff may be different ratios compared to a year ago - making it hard to draw conclusions on a historic performance against a 'today' snapshot against a rival setup.

aroominyork

bowlhead99 said:

aroominyork said:

IanManc said:

aroominyork said:

Everything is an active decision. Choosing a market cap weighted index, instead of an equal weighted index, is an active decision.

VLS isn't a passive fund. It doesn't follow an index. It is a tied fund of funds, where the proportions of the investments in tied funds are chosen by active decision, and those proportions have been changed over time. The proportion invested in the UK is now considerably less than in the past.

VLS100 is now 20%-21% UK. It was closer to 25% not long ago, wasn't it? Did they publish a rationale for this change?

Likely just a mistake on your part. AFAIK, they are still at 25% of equities being UK stockmarket, for all their UK Lifestrategy products, and have not announced a change since they moved from the original 40 at launch to 25 by 2014.

The most recent factsheet is for November (as December hasn't finished yet) which is at LifeStrategy® 100% Equity Fund - Accumulation (vanguardinvestor.co.uk)

That shows
19.3% in Vanguard FTSE UK All Share Index Unit Trust
4.7% Vanguard FTSE 100 UCITS ETF
0.8% Vanguard FTSE 250 UCITS ETF

Give or take rounding, that's the 25% as expected.  I suspect you overlooked the FTSE100 ETF and only noticed the other two funds adding to 20-21%ish.

I was going with HL's country summary which says 20.68% UK. Looks like they got their maths wrong.