2022 Performance - SW PPP1 vs PP1 vs Vanguard LifeStrategy

[Deleted User]

I disagree, especially in the absence of any specific evidence to discuss. 

 Specific evidence seems to be everywhere. An example based on analysis of data for passive vs active managers using datasets from across the world: https://bogleheads.podbean.com/e/episode-050-craig-lazzara-on-active-verse-passive-funds-host-rick-ferri/

engagedandopen

Deleted_User said:

Your comments on VLS 100 as compared to global trackers are interesting.  It seems to me that a multi-asset risk-targeting fund of trackers uses smaller company trackers to increase volatility

Referring to a "conspiracy to increase volatility" gives the impression of not being acquainted with volatility targeted fund ranges.

You lost me completely. What has that got to do with either VLS or global trackers? VLS does not use “smaller company trackers” whatever it is. It uses “whole of the market” funds. Nor does it try to increase volatility. Makes zero sense. If you think that VLS would use leverage to increase volatility (which is what target volatility means), then you should read one-paragraph description of fund’s objectives. 

 Back to your claim that VLS100 is a synthetic fund. Reference would be appreciated.

VLS is not a volatility targeted fund range, neither is a global tracker, Mordko.  For example, Legal & General's Multi-Index fund range is an example of a volatility targeted fund range.  abrdn's Myfolio family of ranges is another.  HSBC Global Strategy is still another.

VLS100 is a multi-asset fund, not a specific index fund (which is to what I made reference).  Vanguard UK refers to synthetic replication as 'sampling', as in this example from the FTSE 100 ETF: FTSE 100 UCITS ETF - ETF (vanguardinvestor.co.uk)

engagedandopen

Deleted_User said:

I disagree, especially in the absence of any specific evidence to discuss. 

 Specific evidence seems to be everywhere. An example based on analysis of data for passive vs active managers using datasets from across the world: https://bogleheads.podbean.com/e/episode-050-craig-lazzara-on-active-verse-passive-funds-host-rick-ferri/

Thanks.  But, as dunstonh said, surely it doesn't have to be all-or-nothing for either extreme (all passive or all active).  Some asset classes are more suited to passive solutions while others are more suited to - and worth paying for - active management.

Prism

engagedandopen said:

Vanguard UK refers to synthetic replication as 'sampling', as in this example from the FTSE 100 ETF: FTSE 100 UCITS ETF - ETF (vanguardinvestor.co.uk)

The Vanguard FTSE 100 ETF VUKE doesn't use synthetic replication. I don't know of any of the Vanguard ETFs that do

dunstonh

VLS100 is a multi-asset fund, not a specific index fund (which is to what I made reference).  Vanguard UK refers to synthetic replication as 'sampling', as in this example from the FTSE 100 ETF: FTSE 100 UCITS ETF - ETF (vanguardinvestor.co.uk)

Whilst I agree with you on the other points, I will just make the  comment that VLS100 is not a multi-asset fund.  it is the odd one out in their range as the others are multi asset.   VLS100 is a global equity fund and it is technically a managed global equity fund.

Also, in the UK, sampled replication is not synthetic replication.  Vanguard don't do the latter on any of their funds in the UK (not that I have seen) but they do use sampled replication rather than full replication.

Synthetic, in simple terms, is using a different instrument to obtain the same result.  Usually a totally different type of asset/instrument with different risks,
Full replication means matching the assets of the index you are following in full
Sampling is where you will drop certain assets.   e.g. not investing in the bottom 10% of companies because the amounts allocated would be so small that the costs outweigh the benefits. (hoping that one of those smaller ones doesn't suddenly jump and you miss the gain from that).

The theory of sampling is that you get mostly the same return at lower costs.  However, it is worth noting that a number of full replication trackers are lower cost than sampled.  So, the cost benefits are not really noticeable.  

But, as dunstonh said, surely it doesn't have to be all-or-nothing for either extreme (all passive or all active).  Some asset classes are more suited to passive solutions while others are more suited to - and worth paying for - active management.

You need to remember that the UK actually fares quite a bit better than other countries when it comes to managed funds.    We have a large range cover lots of areas.   Some countries find 99% of their managed funds underperform.    Certain posters on this site are not from the UK and will be looking at it from the experiences in their country.   e.g. Canada or the US.     Keeping an open mind and making a judgement call in certain areas and picking a particular investing style is very much an opinion and investing is all about opinions.   

A hybrid portfolio where your core in passive and your satellite is active is a popular method.  This can see circa 70-80% in passive and the remainder in active.    However, there are variations.   You could run a core and satellite using fully passive but your management decisions may say that your satellite focuses on equity income or small cap, for example.   That is a management decision.

VLS is a portfolio of passive funds with management decisions on the areas to invest in along with the weightings that apply to them.    They may not have the target volatility method that the others have but the decision to have fixed equity weightings constantly is a management decision just as much as a decision to have a variable equity weighting is.

At the end of the day, every option is involves management decisions.  Some minor. Some major.  Some people struggle to see that and take the mantra that active is bad without realising that the solution they are promoting is also active to some degree.

And back onto the other point of full replication vs sampled.    That too is management decision as the fund is deciding to not fully replicate the index.

Secret2ndAccount

VWRL - FTSE All-World UCITS ETF
"The Fund attempts to track the performance of the Index by investing in a representative sample of Index constituent securities."

Secret2ndAccount

engagedandopen said:
Thanks.  But, as dunstonh said, surely it doesn't have to be all-or-nothing for either extreme (all passive or all active).  Some asset classes are more suited to passive solutions while others are more suited to - and worth paying for - active management.

No, and yes. If a fund manager picks an index, then he fails to beat it: more often than not, and with virtual certainty over the long term.
There might be a reason to pick an active fund if Index Investing is not what you seek. Here are two managed funds I held last year. First was Baillie Gifford Global Discovery. That's an adventurous fund that doesn't measure itself against an index. It takes increased risk in an attempt to achieve outperformance - it's a gamble. It was up massively, then fell sharply, and I got out with a hefty profit. Very happy, but I acknowledge that it was a risk. I felt that the fund manager would be better at identifying opportunities, and trading in and out of them than I would.
Second one was Jupiter Merian Global Equity. I had identified five stocks I was keen to buy. Then I looked at this fund and found that it contained a hefty proportion of all five. Looked at the rest of the major holdings, and decided I would use the fund to do my buying rather than paying dealing charges for each stock. Given that I sold out of it within a year, it worked out cheaper to hold this than to buy the individual stocks.

engagedandopen

dunstonh said:

VLS100 is a multi-asset fund, not a specific index fund (which is to what I made reference).  Vanguard UK refers to synthetic replication as 'sampling', as in this example from the FTSE 100 ETF: FTSE 100 UCITS ETF - ETF (vanguardinvestor.co.uk)

Whilst I agree with you on the other points, I will just make the  comment that VLS100 is not a multi-asset fund.  it is the odd one out in their range as the others are multi asset.   VLS100 is a global equity fund and it is technically a managed global equity fund.

Also, in the UK, sampled replication is not synthetic replication.  Vanguard don't do the latter on any of their funds in the UK (not that I have seen) but they do use sampled replication rather than full replication.

Synthetic, in simple terms, is using a different instrument to obtain the same result.  Usually a totally different type of asset/instrument with different risks,
Full replication means matching the assets of the index you are following in full
Sampling is where you will drop certain assets.   e.g. not investing in the bottom 10% of companies because the amounts allocated would be so small that the costs outweigh the benefits. (hoping that one of those smaller ones doesn't suddenly jump and you miss the gain from that).

The theory of sampling is that you get mostly the same return at lower costs.  However, it is worth noting that a number of full replication trackers are lower cost than sampled.  So, the cost benefits are not really noticeable.  

But, as dunstonh said, surely it doesn't have to be all-or-nothing for either extreme (all passive or all active).  Some asset classes are more suited to passive solutions while others are more suited to - and worth paying for - active management.

You need to remember that the UK actually fares quite a bit better than other countries when it comes to managed funds.    We have a large range cover lots of areas.   Some countries find 99% of their managed funds underperform.    Certain posters on this site are not from the UK and will be looking at it from the experiences in their country.   e.g. Canada or the US.     Keeping an open mind and making a judgement call in certain areas and picking a particular investing style is very much an opinion and investing is all about opinions.   

A hybrid portfolio where your core in passive and your satellite is active is a popular method.  This can see circa 70-80% in passive and the remainder in active.    However, there are variations.   You could run a core and satellite using fully passive but your management decisions may say that your satellite focuses on equity income or small cap, for example.   That is a management decision.

VLS is a portfolio of passive funds with management decisions on the areas to invest in along with the weightings that apply to them.    They may not have the target volatility method that the others have but the decision to have fixed equity weightings constantly is a management decision just as much as a decision to have a variable equity weighting is.

At the end of the day, every option is involves management decisions.  Some minor. Some major.  Some people struggle to see that and take the mantra that active is bad without realising that the solution they are promoting is also active to some degree.

And back onto the other point of full replication vs sampled.    That too is management decision as the fund is deciding to not fully replicate the index.

Dunstonh,

Thank you so much for taking the time to share this detailed explanation of some of the nuances with index tracking instruments.

Best wishes.