Vanguard Lifestrategy Bond Duration

hewhohuntselves

Hi.

To add to the regular VLS discussion, I have been reading how VLS's long bond duration renders it relatively badly placed in the current interest rate climate.  

What are people's thoughts on this.  Has it caused anyone to question their continuing investments into VLS?

Thanks.

GeoffTF

I do not think the duration is particularly long. You work it out from the durations for the individual constituent funds, which you can get from here:

https://www.vanguard.co.uk/professional

About 7 years, I expect. Do you believe that the markets have got the pricing of bonds wrong?

dunstonh

What are people's thoughts on this.  Has it caused anyone to question their continuing investments into VLS?

VLS hasn't been the multi-asset fund of choice for a good number of years now.    However, it still does exactly the same as it what it did when it launched.  So, nothing has changed.  

metrobus

The range launched in June 2011, so up and until the last 12 months they have operated in virtually zero interest rates and thrived . Times have changed and people can get a total risk free return of around 6%.
It will be interesting to see if people are still so willing to put their hard earned into them after the last couple of years of loses.
How long do you keep doing nothing with them in the knowledge that past performance has nothing to do with future performance?

hewhohuntselves

dunstonh said:

What are people's thoughts on this.  Has it caused anyone to question their continuing investments into VLS?

VLS hasn't been the multi-asset fund of choice for a good number of years now.    However, it still does exactly the same as it what it did when it launched.  So, nothing has changed.  

What would you identify as the alternative?

Linton

hewhohuntselves said:

dunstonh said:

What are people's thoughts on this.  Has it caused anyone to question their continuing investments into VLS?

VLS hasn't been the multi-asset fund of choice for a good number of years now.    However, it still does exactly the same as it what it did when it launched.  So, nothing has changed.  

What would you identify as the alternative?

The alternative depends on why you want to hold bonds at all. For some objectives VLS is fine though one could reasonably argue that HSBC Global Strategy is better. However the practical difference will probably be marginal.

All such funds have the basic drawback that unmanaged funds of bonds substantially reduce the main advantage of holding bonds at all, that being the guaranteed repayment at maturity. So we come back to the question of objectives.

GeoffTF

The OP seems to heard about the opinion that bonds are currently expensive relative to stocks. Others hold the opposite view. There are people who are uncomfortable about holding bonds because the price has recently fallen. Others see cheap bonds as a result of that price fall. They also see expensive equities. There are buyers and sellers for both equities and bonds. That is what makes a market. Here is a discussion of the view that we should dump equities and buy bonds:

https://www.youtube.com/watch?v=7JvLRb5zU2c

Nobody knows who will prove to be right.

JohnWinder

VLS's long bond duration renders it relatively badly placed in the current interest rate climate.  

What are people's thoughts on this.  Has it caused anyone to question their continuing investments into VLS?’

Can you give us some source material for what you’ve been reading, or at least put the argument you’ve read so we can learn something?

As I understand it when interest rates rise bond prices fall, and vice versa. The rise or the fall size depends on how big the interest rate change(s) was, and how long the bond duration was. So a long duration bond will rise and fall further than a short duration bond, or bond fund.

No one knows how interest rates will change in the coming several to many years, and that’s relevant because several to many years is how long an investor would invest in a fund like the VLS series. So it’s pretty risky to buy or sell the fund based on your view of interest rates in several years time, since you could be quite wrong about rates; interest rates are notoriously hard to predict. So you buy or sell a VLS type fund according to whether the length of the bond duration suits your investing timeframe. If you’re going to invest in it for longer than the duration, you’re safe from interest rate rises which will depress the value of the fund; if you’re investing for less than the duration, you’re taking a risk you could reduce by holding shorter duration bonds.

What do you think?

InvesterJones

Duration seems to be 7-8yrs. But with funds of bonds one main consideration is what those bonds are worth to someone else - ie price as GeoffTF mentions. If such bonds are undesirable then the fund will be able to buy them cheaply (it will also have to sell them cheaply if people leave the fund) - so that should all be factored in.

JohnWinder

GeoffTF said:

I do not think the duration (of VLS) is particularly long..

About 7 years, I expect.

The HSBC global strategy balanced fund has an effective bond duration of about 7 (I think, it’s a bit confusing, again). 

VLS hasn't been the multi-asset fund of choice for a good number of years now. 

The VLS60 seems to be four times as big as the HSBC global strategy balanced fund, 12B vs 3B. They’ve both been going about 11 years.

Albermarle

JohnWinder said:

GeoffTF said:

I do not think the duration (of VLS) is particularly long..

About 7 years, I expect.

The HSBC global strategy balanced fund has an effective bond duration of about 7 (I think, it’s a bit confusing, again). 

VLS hasn't been the multi-asset fund of choice for a good number of years now. 

The VLS60 seems to be four times as big as the HSBC global strategy balanced fund, 12B vs 3B. They’ve both been going about 11 years.

I think the VLS range is much more heavily marketed, in the UK anyway. However the performance of the risk targeted HSBC funds that have no home bias, has generally been a little better, and they are slightly cheaper.