USS Growth Fund performance vs Vanguard passive global fund performance

dllive

Hi,

For the past 2 years Ive been making big monthly AVCs into my USS pension scheme (USS Growth Fund).

Ive also been making much smaller monthly contributions to my SIPP (Vanguard LifeStrategy 100% - Accumulation).

I might be wrong, but it seems the LifeStrategy 100% (and many other passive global trackers) have performed far better than the USS Growth Fund.

Is that right?

Even though my Employer doesnt offer salary sacrifice for AVCs, the benefit is that I dont pay USS to manage my pension. (as far as Im aware. Its subsidised by my employer). But even so, my payments to Vanguard seem pretty reasonable.

So next year Im thinking of swapping the current situation: Making much bigger contributions to my SIPP, and much small AVCs to USS.

Id appreciate an objective opinion on this, and if Im wrong or not.

Thanks

Cornish_mum

Hi

USS growth isn’t a 100% equities fund see pg 24 for underlying info https://www.uss.co.uk/-/media/project/ussmainsite/files/fund-factsheets/quarterly-investment-report.pdf?rev=26b53c1a8d0a490baabe90f46e0e7fbb 

so it is not comparable to LS100%. You can opt for an 100% equity fund in USS if you want as per info sheet. Just login to your myUSS account and request if you want to switch.

Also be aware of default lifestyling (ie derisking prior to your TRA). USS’s default assumption is AVCs will be used to purchase an annuity.

My understanding is that the HEI pay all management fees but as your employer doesn’t offer salsac, I can understand your dilemma. 

If you are thinking of switching for your SIPP and want a 100% equity passive fund if may be worth reading https://monevator.com/compare-uk-cheapest-online-brokers/. 

Best wishes CM

NickBFS

It seems that you are not comparing like with like. Your SIPP is invested entirely in equities whereas the USS growth fund contains a mix of asset classes including bonds.

As a result, your SIPP benefited from the excellent performance of equities in recent years more than your investments in the USS Growth Fund. There are 100% equities funds available in USS (in particular the Global Equity Fund and the Sharia Fund, which is essentially a variation on the theme of the Global Equity Fund with sharia-incompatible investments removed). Had your investments in USS been in the global equity fund rather than the growth fund, its performance would have been much more comparable to that of your Vanguard SIPP.

Given that USS gives you a cushion of safety through the DB component (retirement builder), IMO it makes sense to go for a more risky approach in the investment builder and favour equity investments like the USS Global Equity Fund or Sharia FUnd over lifestyle-oriented funds like the various Growth Funds. That certainly was my own approach with my USS investments.

dunstonh

USS Growth Fund performance vs Vanguard passive global fund performance

Just picking up that your title says passive global fund but your first post says you hold VLS100 which is a  managed global equity fund.   It may have underlying passive funds in its makeup but its not a passive fund.    It has quite notable management decisions.  Such as home bias.

VLS100 is the odd one out in the VLS range.  Its not particularly desirable to hold compared to other options.  A global passive fund would be better if you believe in passive investing.   Even that has some management involved as you can select different benchmarks to track but they will be purer than VLS100 (and cheaper).

And as pointed out higher up, the USS fund is not 100% equities.  So, comparing it with 100% equity funds would obviously show a lower return in growth periods (and less of a loss in negative periods).

Micrographia

Following on from comments above, if I were you I'd be inclined to both a) redirect my USS AVCs to the global equity fund option and b) increase my AVCs by stopping SIPP contributions. You could also look into swapping some or all of your existing USS Investment Builder investment out of the growth fund and into equity funds instead, especially if retirement is some way away. It is all quite straightforward to do in MyUSS. 

If you are a higher rate taxpayer it may remove the need to fill in an annual self assessment form to claim higher rate tax relief for your SIPP contributions. Because of the hybrid nature of the USS scheme, there are also benefits associated with maximising your USS Investment Builder pot when you come to think about your options at retirement. As always, a lot will depend on your specific situation and attitude to risk.

dllive

Thanks so much guys.

I should have looked at the different USS funds a little closer 2 years ago!!!  Id assumed the USS naming convention of: Cautious Growth Fund / Moderate Growth Fund / Growth Fund applied to the bond/equities mix, with Growth being 100% equities. Ugh! My bad! 

I see the USS Global Equity Fund 5 years cumulative performance is much more comparative to the 5 year LifeStartegy 100 performance!

As it stands, 50% of my pension is in my SIPP (100% equities) and 50% is in the USS Growth Fund (mix of equities and bonds). Do you know what the percentage mix of equities/bonds there is in the USS Growth Fund? (apologies if its mentioned somewhere, I cant see it).

Ive just found the screen in my USS account that allows me to move existing savings - and any new contributions -  to. I didnt know I could do this! Perhaps Ill do something like the below!



If I do something like this, am I right in thinking - as I get closer to retirement - Ill need to manually transition myself into 'safer' funds (more bond focused)? Rather than the Do It For Me option where they automatically make the transition.

Are there any ramifications to suddenly switching the fund? I cant think what, but it seems a drastic move to switch all my existing savings from USS Growth Fund to the USS Global Equity Fund. Perhaps being out of the market? Or trading fees, or something? I dont know. Perhaps its fine to chop and change funds.

Also, just to give some context, Im 15 years from retirement. And Im a higher rate tax payer.

dllive

Regards my question "Do you know what the percentage mix of equities/bonds there is in the USS Growth Fund?" - Ive just found the pie chart showing the allocation on the fund fact sheet! But I dont know what 'Private Markets' are - these make up 22.1%! What are 'Global High Yield'? Bonds presumeably. 

So - looking at the pie chart - theres probably about a 70/30 equity/bond split?

Micrographia

Might be an idea to take some time to read and digest the document “A guide to investing in the Investment Builder” available on the USS website. Has answers to many of your questions.

With 15 years to go you have plenty of time to build your DC pot. Nothing wrong with leaving your existing growth fund investment where it is and switching to equity funds from now on. I’m 90% equity funds and 10% growth fund for new contributions at the moment myself.

One persons transitioning to safer funds as retirement approaches (AKA lifestyling) is anothers needlessly throwing away equity investment returns as insurance against something that might never happen, so that’s something else you might want to read up on and make your own mind up about 😁. One point of view already mentioned is that the DB part of USS means a large portion of your pension is already de-risked. For some, this is enough of a safety net for them to stay fully invested in equities in their DC pot and still sleep at night. But again, will depend on your specific situation. 

Hoenir

Micrographia said:

One persons transitioning to safer funds as retirement approaches (AKA lifestyling) is anothers needlessly throwing away equity investment returns as insurance against something that might never happen, 

Outlooks are often influenced by what people have experienced over their investing lifetimes. As an investor never wise to get too smug. 

QrizB

Micrographia said:

One point of view already mentioned is that the DB part of USS means a large portion of your pension is already de-risked. For some, this is enough of a safety net for them to stay fully invested in equities in their DC pot and still sleep at night.

While I'm not in USS, that's pretty much my position. Roughly half the value of my pension is made up of a deferred DB, so I'm being more agressive with my DC investments than would normally be recommended for someone not-too-far from retirement.

Time will tell whether this was a good idea or not!

dllive

Thanks all for your comments, very helpful. I  need to do some more reading, and will certainly start with the "A guide to investing in the Investment Builder".
Cheers!