Core fund for ISA - Vanguard LS 100?

F1001

Hi everyone, 
I had to find a new place for my S&S ISA as my robo advisor exited the UK. I went to a DIY platform and bought Vanguard Lifestrategy 100 fund and have been adding to that fund since. I now am wondering if there is a better alternative core fund to keep for my S&S ISA like the FTSE or MSCI all world index funds? Should I look for an index fund or ETF? And if I go for a global fund then should it be "all world" or "all countries"? I intend to add a few satellite funds to the core fund such as an active fund or AIM / small caps fund or REITs but I dont want to do much work to rebalance. My aim is to maximise growth and then maybe move to an income strategy in 10 years. Would be really good to hear what others are doing and what you think ? Thanks!

El_Torro

VLS100 isn't a bad fund. The main thing to bear in mind is that it invests roughly 25% in the UK, a global weighting would be more like 5% in the UK. If you're OK with a UK bias then it's not a bad choice. 

VLS100 is also more expensive than a global tracker. The differences aren't huge though, I think some people get more hung up on small differences in fund costs than they should. 

If you want to invest in something that has a more accurate global weighting and that's cheaper than VLS100 then go for a global tracker.

dunstonh

. I now am wondering if there is a better alternative core fund to keep for my S&S ISA like the FTSE or MSCI all world index funds?

In your research, you decided to pay a little more in charges to get the active management decisions that Vanguard take with VLS100.     So, what has changed?

Should I look for an index fund or ETF?

ETFs are index funds.   Index funds can be held as ETFs, UTs, OEICs, pension funds and insured funds (as well as several others).

And if I go for a global fund then should it be "all world" or "all countries"?

Depends on what active decisions you want to make about your portfolio.    

 I intend to add a few satellite funds to the core fund such as an active fund or AIM / small caps fund or REITs but I dont want to do much work to rebalance.

So, you are not really going to be a passive investor but an active one.    So, if that is the case, you need to devise the strategy you are going to follow.    Hopefully, not random hit and hope but I suppose that is a strategy

F1001

Thanks @El_Torro and @dunstonh

So my initial objective was to replace my robo advised portfolio but at low cost. I chose Vanguard LS because I thought Vanguard is known for low cost, and LS equity funds looked similar to the portfolio construction that the robo advisor had used. As I have a growth objective I wanted to go all in equity rather than a portion in bonds/cash which is why I chose LS100 rather than LS80. Now i'm thinking 1) cost - can I achieve the same thing but with one fund rather than the LS fund of funds?  2) diversification - I know the LS has a higher % bias to the UK so was thinking should the core fund be more global and if I want to have the bias I can add a UK fund as a satellite fund separately? And also how to add in multi-asset /commodities, real estate etc.

Good questions which now has me thinking active vs passive - I think I prefer the ISA to be passive and then maybe I use a GIA for exploring a more active strategy?

Alexland

Personally I am happy with developed world trackers such as VEVE or Fidelity Index World at 0.12%. I also like the ESG filtering on LGGG at 0.10% but you need to be careful on market spread when buying.

I don't particularly want to own EM (eg China) or have a UK bias let alone pay the higher (or in the case of VLS almost double) ongoing fund management fees.

Without any knowledge of which market will perform better I want to keep it simple, fairly diversified, low cost with some proportion a bit ethical.

boingy

It's not necessarily a bad thing to have your investments slightly biased towards the country where you earn and spend your money.

InvesterJones

boingy said:

It's not necessarily a bad thing to have your investments slightly biased towards the country where you earn and spend your money.

But it's very hard to do - UK indexes (like the FTSE-all share used by VLS100) are dominated by international companies whose UK operations are a minority of their work. Better to overweight a mid or small cap UK fund if aiming for domestic bias.

F1001

Thanks all!
I've just been researching the difference between ETFs OEICs and ITs - still quite confusing and not sure which is best for a simple core ISA fund. I think LS100 is an OEIC so, it might be better to switch to an ETF global index tracker? Anything I should be aware of before taking this route? Am looking at L&G Global Equity ETF (charges 0.1% and tracks the Solactive Core Developed Markets Large and Mid Cap Index) or iShares MSCI ACWI ETF USD Acc (charges 0.2% but includes Emerging markets) - any thoughts on these or alternatives?   

MX5huggy

You can only buy whole units of an ETF if you’re investing small amounts say £50 per month then if units are £67 you can’t buy a whole unit every month. Traditional funds you can buy bits of units. I hold VEVE because it’s cheaper than VWRL if I wanted emerging market exposure I would buy a bit of VFEG

InvesterJones

F1001 said:

Thanks all!
I've just been researching the difference between ETFs OEICs and ITs - still quite confusing and not sure which is best for a simple core ISA fund. I think LS100 is an OEIC so, it might be better to switch to an ETF global index tracker? Anything I should be aware of before taking this route? Am looking at L&G Global Equity ETF (charges 0.1% and tracks the Solactive Core Developed Markets Large and Mid Cap Index) or iShares MSCI ACWI ETF USD Acc (charges 0.2% but includes Emerging markets) - any thoughts on these or alternatives?   

There isn't a simple best for ETFs vs OEICs/Unit Trusts vs ITs - it depends on other factors like your platform and how you intend to trade. Work out the latter first, then pick a platform and fund type that suits it best. There are very similar funds for global passive trackers available as OEICs or ETFs, and on some platforms there's no difference in holding fees so it would come down to whether you need intra-day trading (ETFs) or fractional purchasing (OEICs).

JohnWinder

Should I look for an index fund or ETF? And if I go for a global fund then should it be "all world" or "all countries"? I intend to add a few satellite funds to the core fund such as an active fund or AIM / small caps fund or REITs but I dont want to do much work to rebalance. My aim is to maximise growth and then maybe move to an income strategy in 10 years.

I think you can get to the right answer that suits you particularly, as far as which assets (REITS, AIM, global etc) to invest in, by looking at past results in portfoliovisualizer. From the ‘tools’ option choose ‘backtest asset class allocation’; there you can test what happened when you added REITs to a portfolio, or omitted emerging markets or small cap stocks. You can see from this link that you would have had better returns holding some REITS over the last 30 years; but you’re contemplating a 10 year horizon before changing to an ‘income portfolio’, so look at some different 10 year periods as well. https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=5Fl8AhUIJbTOSqZEfOpq66
With this information you can decide if it’s worth holding these ‘satellite’ funds which often cost more but don’t ensure better returns.
Lastly, it’s right not to think simplistically that ‘active’ and ‘passive’ investing means one type and excludes the other. As we see with VLS100, it’s an index tracker for >90% of its holdings but those index holdings may be varied. It’s a lot closer to a tracker than a Blue Whale or Terry Smith fund. So don’t fall for the idea that because VLS100 is a suitable choice for a ‘passive’ investor’ (although it’s ‘active’), that Blue Whale or the like is similarly suitable. You might find a good reason for you to invest in Blue Whale type funds, but you making an active decision to choose a tracker with or without emerging market stocks would not make you an ‘active’ investor in the usual sense of the word.