How many funds needed to replicate Vanguard LS60?

BookofShadows

Hi, 

As I slowly get more to grips with how I'm investing to supplement my pension I am looking to transfer out from my original SS ISA which was Vanguard LS60 into a few funds that would have a similar content but with the bonds element separated out (so I could potentially sell / rebalance bonds or equity as the market dictates when I need to access - hopefully 6 or 7 years away)

Is it / can it be as simple as transferring 40% into a global bonds fund and 60% into something like the FTSE Global All Cap Index Fund that I already have another tranche invested in?

Appreciate there are nuances with exact content, but could it be as simple as picking a single bonds fund and a single 100% equity fund to roughly match performance with increased flexibility?

I'm sure I've read on here that some consider the LS funds to be too heavily UK weighted, so going to a global equity fund would seemingly adjust that.

eskbanker

If you're broadly happy with VLS and wish to be able to adjust the equity/bond split then you can easily move up or down their range as and when needed, e.g. all or some into VLS40 or 80.

On the other hand, if you wish to change the geographic allocation away from the UK-centric VLS model, then you would need to use multiple products.

dunstonh

, but could it be as simple as picking a single bonds fund and a single 100% equity fund to roughly match performance with increased flexibility?

No.  If that was the case, Vanguard would do that same.  Plus, it would be more expensive as global equity trackers are generally more expensive than single country/region trackers.  

Vanguard has 17 underlying funds.  You could simplify it a bit if you don't mind paying more.  On the bond side, there isn't a lot of choice with catchall funds and typically they have limitations on what they include or exclude.

I'm sure I've read on here that some consider the LS funds to be too heavily UK weighted, so going to a global equity fund would seemingly adjust that.

Opinions will vary but what is factual is that the VLS range on the OEIC has home bias as a management decision (although version with global weightings or a version with home bias exists on the IFA version.  Vanguard don't make that available to DIY investors)

Vanguard, like most of the fund houses or portfolio builds that do similar spreads, use currency hedged funds on the global bonds.      

michaels

Also of course the vanguard fund does automatic rebalancing to keep close to the advertised stock/bonds split which you would need to do manually if you went for your own split between funds.

BookofShadows

Thanks for the comments both - I'm learning, slowly.

I would like to have a separate fund for the 40% of my LS60 that isn't in equities - to allow flexibility with rebalancing and or selling. 

If I split what is in my LS60 pot by putting 60% into my existing FTSE Global All Cap Index pot (ISIN: GB00BD3RZ582 - 0.23% ongoing charges) and the rest in the Vanguard Global Bond Index fund (ISIN: IE00B50W2R13 - 0.15% ongoing charge and hedged) my costs would be there or there abouts the same as my LS60 (0.22%).  I take it from the above comments that this won't be a direct replica of LS60 - but how far away are we talking?  The Risk & Reward profile numbers are in the same ballpark and the broad 60:40 mix is too.  But am I missing some massive risk or flaw that makes this a very bad idea?

BookofShadows

michaels said:

Also of course the vanguard fund does automatic rebalancing to keep close to the advertised stock/bonds split which you would need to do manually if you went for your own split between funds.

Yes, which has been what I've wanted whilst accumulating - but I'm now noticing the limitation that if I want to take money out of the portfolio I can't choose to take from bonds or equities exclusively so if either is in a pickle when I want / need access some pain comes with that limitation.  

Pipthecat

 I would take a look at what LS60 is made up of
LifeStrategy® 60% Equity Fund - Accumulation
Under the portfolio data you can see which funds it is made up of and how this creates the UK bias.  

dunstonh

michaels said:

Also of course the vanguard fund does automatic rebalancing to keep close to the advertised stock/bonds split which you would need to do manually if you went for your own split between funds.

That is actually a difference in the MPS version that IFAs can use and the OEIC version open for all.   The OEIC uses inflows and outflows to rebalance.  So it is effectively daily rebalancing.   The MPS version will rebalance quarterly to target ratios.

 I take it from the above comments that this won't be a direct replica of LS60 - but how far away are we talking?

The bonds element is typically made up of the following:
UK gilts
UK index Linked gilts
short term global bonds
global bonds
corporate bonds
High yield bonds
emerging market bonds.

That list doesnt cover all variations but the most common.  The last two in the list are frequently ignored as they do not reduce volatility.  Some may use them as part of their equity allocation (given their higher return/higher loss potential)

The fund you have given covers global bonds.   
Your global bond fund choice is similar to picking an S&P500 tracker and saying that is good enough by itself to cover your equity ratio.  i.e. it may make up the largest chunk but its missing a fair bit.

BookofShadows

Pipthecat said:

 I would take a look at what LS60 is made up of
LifeStrategy® 60% Equity Fund - Accumulation
Under the portfolio data you can see which funds it is made up of and how this creates the UK bias.  

Thanks - I knew I'd seen a way you could access that breakdown previously, but could only find the key investor information document from my portfolio page. 

dunstonh said:

 I take it from the above comments that this won't be a direct replica of LS60 - but how far away are we talking?

The bonds element is typically made up of the following:
UK gilts
UK index Linked gilts
short term global bonds
global bonds
corporate bonds
High yield bonds
emerging market bonds.

That list doesnt cover all variations but the most common.  The last two in the list are frequently ignored as they do not reduce volatility.  Some may use them as part of their equity allocation (given their higher return/higher loss potential)

The fund you have given covers global bonds.   
Your global bond fund choice is similar to picking an S&P500 tracker and saying that is good enough by itself to cover your equity ratio.  i.e. it may make up the largest chunk but its missing a fair bit.

Thanks again, really helpful.  So, now armed with the breakdown of LS60 (today) I can see that the bond fund I plucked from the list currently makes up 19.3% of LS60.  If I also added the next two biggest ones (UK gov't bond index and UK Investment grade bond index) that would take me to almost 30% of LS60 - or I could add the UK inflation linked gilt index and the Global Aggregate Bond UCITS ones for a similar % but with a little more spread of risk (I assume).  That feels maybe 'close enough' for my purposes*. 

*My purposes being to separate out the non-equity part of my ISA - which is a small part of my overall portfolio combined with a (SP sized ish) old DB pension and a DC that I'm currently paying into. DC is now 100% in equities but intending to start buying something more 'stable' with a proportion of the contributions soon. 

DoublePolaroid

Ramin Nakisa AKA Pensioncraft produced a video on this very subject a few years ago. In fact he aimed (successfully) to achieve a very close replication of LS60 at a lower cost and did so with five funds.

I imagine the composition of LS60 has changed since then, but it’s worth a look. 

dunstonh

Vanguard has increased the number of underlying funds over the years.  Mostly on the fixed interest side IIRC.