Vanguard Lifestrategy - UK bias issue

JohnWinder

Thrugelmir said:

Without differing opinions there'd be no markets. 

... unless some people grew oranges, and some grew apples, and they met on Saturdays to exchange fruit.....

Linton

adindas said:

eastmidsaver said:

hello.   so i am a fan of this fund,   and have been investing in it since around January every month in my SIPP.
however,   i have only just realised how big the UK bias is on it  (i think around 22% equity),  and this clearly impacts the overall performance.
VG state in on the KID that the UK bias is because that is what the customers want (i fund that hard to believe).
i am just wondering,  is there a simple way i can just buy 2 or 3 trackers to almost replicate this?   
for instance would a global all index, global bond index, and emerging markets index the cover the majority of it?
i appreciate this way means i need to rebalance myself every now and then,  which is why i;d only consider if can do it with a smaller number of funds.
thanks.

From your post I believe you are talking about VLs . VLS100 available on vanguardinvestor.co.uk is more UK Biased as it is generally intended for UK investors. Also because it is priced in GBP.

I do not think with such allocation it is "big the UK bias".

As you would expect UK investors will be more familiar with UK market and therefore will likely to buy UK companies and index. VLS100 provides reasonable coverage on UK stocks FTSE index to avoid the need for people to buy separate FTSE index and UK Individual company Stock. But In the meanwhile it also provides enough level of global divessification as you will notice from the allocation above.

Currently the UK index in underperforming compared to S&P 500 for instance due to slow COVID-19 recovery and recently the new COVID-19 delta variance. But it might be a good thing as it has not reached the pre-Covid19 pandemic high, let alone an ATH. So they still have a lot of room to grow much faster once the economic reopening is successful. In the meanwhile S&P500 already reach ATH a few weeks ago, so less room to grow. The stock market shell off last week until monady this week might be just an overreaction to COVID-19 Delta variance as you see it is now starting to bounce back.

The FTSE100 has underperformed the S&P500 since the 2008 crash.  The problem is nothing to do with Covid but rather because the index has not benefitted by the rise of tech and other growth shares.  The FTSE100 has 0.95% allocated to the tech sector compared with 24% for the S&P500.  Apart from there being fewer large tech companies listed in the UK than on the S&P500 any half decent ones get taken over well before they provide serious benefit to the index investor eg ARM.

In the past, say 25 years ago, investing in mature defensive shares has been more lucrative in the longer term than investing in growth so perhaps the pendulum will swing back at some time.

Alexland

Linton said:

In the past, say 25 years ago, investing in mature defensive shares has been more lucrative in the longer term than investing in growth so perhaps the pendulum will swing back at some time.

As valuations diverge it creates an ever greater hurdle for US growth shares to continue their outperformance.

There's probably a more recent version of this graph but it's good enough to illustrate the point.

adindas

Linton said:

adindas said:

eastmidsaver said:

hello.   so i am a fan of this fund,   and have been investing in it since around January every month in my SIPP.
however,   i have only just realised how big the UK bias is on it  (i think around 22% equity),  and this clearly impacts the overall performance.
VG state in on the KID that the UK bias is because that is what the customers want (i fund that hard to believe).
i am just wondering,  is there a simple way i can just buy 2 or 3 trackers to almost replicate this?   
for instance would a global all index, global bond index, and emerging markets index the cover the majority of it?
i appreciate this way means i need to rebalance myself every now and then,  which is why i;d only consider if can do it with a smaller number of funds.
thanks.

From your post I believe you are talking about VLs . VLS100 available on vanguardinvestor.co.uk is more UK Biased as it is generally intended for UK investors. Also because it is priced in GBP.

I do not think with such allocation it is "big the UK bias".

As you would expect UK investors will be more familiar with UK market and therefore will likely to buy UK companies and index. VLS100 provides reasonable coverage on UK stocks FTSE index to avoid the need for people to buy separate FTSE index and UK Individual company Stock. But In the meanwhile it also provides enough level of global divessification as you will notice from the allocation above.

Currently the UK index in underperforming compared to S&P 500 for instance due to slow COVID-19 recovery and recently the new COVID-19 delta variance. But it might be a good thing as it has not reached the pre-Covid19 pandemic high, let alone an ATH. So they still have a lot of room to grow much faster once the economic reopening is successful. In the meanwhile S&P500 already reach ATH a few weeks ago, so less room to grow. The stock market shell off last week until monady this week might be just an overreaction to COVID-19 Delta variance as you see it is now starting to bounce back.

The FTSE100 has underperformed the S&P500 since the 2008 crash.  The problem is nothing to do with Covid but rather because the index has not benefitted by the rise of tech and other growth shares.  The FTSE100 has 0.95% allocated to the tech sector compared with 24% for the S&P500.  Apart from there being fewer large tech companies listed in the UK than on the S&P500 any half decent ones get taken over well before they provide serious benefit to the index investor eg ARM.

In the past, say 25 years ago, investing in mature defensive shares has been more lucrative in the longer term than investing in growth so perhaps the pendulum will swing back at some time.

Well, obviously. It is especially With the mega cap tech growth companies such as FAANG, Microsoft and other growth companies with the business models have very little effected by COVID-19 dominating the S&P 500.

But my previous point is not to beat the S&P 500 all the time. But the potential of room to grow faster to the go back to the pre COVID-19 high (e.g percentage increase) in the near future. S&P 500 has gone far beyond Pre Covid-19 since 2020. FTSE 100 has not

The chance that it will go back to pre-Covid19 in relatively short period is very high when the economic recovery has been proven to be successful.

coastline

If world markets were to correct in some form then you'd imagine the UK will follow ? When has it not been any different.? What can be seen in the link is the UK on a forward PE of 12. Which is fair you could say ? Figure 10 shows details going back to 1995 and includes the distortion of the dotcom era around year 2000. So despite the UK market recovering ,earnings are also improving. 

 Global Index Briefing: United Kingdom MSCI (yardeni.com

Much has been said about valuations especially in the US and forward earnings of PE 20 are way above the UK at PE 12.
A nice summary here about the US history.

Using P/E Ratio to Determine Current US Stock Market Valuation (currentmarketvaluation.com)
 
Even by the Buffet Indicator things are looking frothy. No idea what will happen but some form of correction or even sideways move would bring some of those charts back to +1 Standard Deviation. Who knows ?

Buffett Indicator Valuation Model (currentmarketvaluation.com)

In the link below it's interesting to see historically small and mid cap are not that demanding in Figure 8.
Looking further ahead from Figure 12 it throws up some useful information about the SP 500. Figure 15, 16 ,17 18 and 19 break up the Growth , Value and Tech situation. Maybe Value won't get a big hit IF there was a correction which you could say puts the UK in a better position with the fair value PE 12. All a guess all a game.

Stock Market Briefing: Selected P/E Ratios (yardeni.com)

Thrugelmir

JohnWinder said:

Thrugelmir said:

Without differing opinions there'd be no markets. 

... unless some people grew oranges, and some grew apples, and they met on Saturdays to exchange fruit.....

And what happened to the UK apple industry.  Buying imported fruit product at the expense of home grown. 

Nebulous2

Thrugelmir said:

JohnWinder said:

Thrugelmir said:

Without differing opinions there'd be no markets. 

... unless some people grew oranges, and some grew apples, and they met on Saturdays to exchange fruit.....

And what happened to the UK apple industry.  Buying imported fruit product at the expense of home grown. 

It all goes to making cheap and nasty cider. Distorted by favourable tax treatment compared to other alcoholic drinks. 

eastmidsaver

i just had a look at it and this is how the top 10 holdings look,  which when considering posts above,  it;s maybe not as bad a UK bias as i first thought.

eskbanker

eastmidsaver said:

i just had a look at it and this is how the top 10 holdings look,  which when considering posts above,  it;s maybe not as bad a UK bias as i first thought.

The geographical proportion immediately above the top ten shows 24% UK, is that 'better' or 'worse' than what you'd assumed before checking?

eastmidsaver

oh sorry.... i was looking at the FTSE All Share at 16.9%.  Didn't consider the bonds.