Monday, 22 May 2017

Vanguard Lifestrategy 60 - Year 2 Update

It is now two years since I added this to my portfolio and time for another update. The fund represents the largest holding in my portfolio.

Following a review of my investing strategy in 2015, I have come around to thinking that probably all I really need is a very simple, no-frills low cost diy strategy which makes sense, which can be tailored to fit in with my attitude to risk/market volatility and has every chance of providing a decent outcome.

Investing is all about the long term for the best probability of a good result. Investors therefore need a sound strategy which will provide them with every chance of lasting the course or ‘staying in the game’.

Having rejected the LifeStrategy option for at least the previous two years, I decided to change tack and take the 'income' I needed from selling units in the fund rather than the natural yield which I have done with my shares and investment trusts.

A One-Stop Solution

The Vanguard LifeStrategy funds offer a balanced portfolio of globally diversified equities combined with some gilts and corporate bonds.

Therefore, by holding just a single LifeStrategy fund, my portfolio is widely diverse with ~18,000 stocks/bonds from all around the world. The bond element (assuming you do not want the 100% equity) will comprise a combination of UK gilts, global bonds, corporate bonds and inflation-linked gilts. The equities element includes their UK all share tracker, global funds and some exposure to emerging markets.

The big advantage for me is the auto rebalance to ensure the fund always remains at the risk level selected at the start - in my case with VLS60, 60% equities. The fund is frequently rebalanced - probably daily as new money is injected via purchases.


The annual charges for the Lifestrategy range have been reduced to 0.22% p.a. in the past year. My platform costs with Halifax Share Dealing are £12.50 p.a. which works out at 0.04% for £30,000. This fee would be £45 if held on Vanguard's new platform however there would be no charges for buying and selling.

Performance

So, how has the fund performed? I made my initial purchase in my new ISA with Halifax in May 2015 and topped up later in the year as the markets retreated. My average purchase price was £136.50.

The current price two years on is £169.50 so a gain of 24.1%.

(click to enlarge)

By comparison, the total return for the FTSE All Share over the same period is ~15.0% so the combination of 40% bonds and a wider exposure to global equities in the VLS fund has worked very well. The LifeStrategy fund is priced in US dollars and some of the rise in unit price has come from the fall in sterling post Brexit.

The total return for each of the last 5 full years has been

2012   9.29%,

2013 11.13%

2014   9.36%.

2015   2.53%

2016 18.27%

2017   2.81% (4m to end April)

The average annualised return since inception is 9.3%.

Corresponding returns for the FTSE All Share Index  2012  12.3%, 2013  20.8%
2014  1.2%, 2015   1.0%, 2016  16.7% and 2017 year to date 6.8%.


Income

The natural yield on the fund is ~1.4% however I really need an income from my investments of around 4%. I have purchased the accumulation version of the fund with the intention of selling off some units each year to provide the 'income' I require.

Due to the unexpected boost in my Lifestrategy fund last June, I decided to sell 8% of my holding which is the equivalent of 2 years 'income' so for the coming year I already have my income requirement covered and can therefore leave the fund to accumulate.

As can be seen above, selling off 4% would work in 4 out of 5 years. For periods when returns are negative, I hold a cash buffer of 10% of the fund value in my building society a/c however, so far it remains untouched and has increased with the accumulated interest.

The appeal of the VLS strategy is its simplicity - 18,000 assorted global equities and bonds in one fund with low cost of ownership. It offers me the level of equity/bond allocation to match my requirements and can deliver a reasonable return compared to other strategies.

It seems to me that putting together a DIY investment portfolio does not come much simpler than this. You decide on your asset allocation, select your broker, invest your lump sum and/or set up your automated monthly direct debit - job done, get on with your life!

The only minor reservation I have is the equity allocation of 25% to the UK is a little high and I would prefer a lower figure of say 15%. Otherwise I am more than happy with returns for my first two years and hope to top up my ISA holding in the next few months as I have a build up of cash from various sales and the redemption of my building society PIBS.


Leave a comment below if you hold VLS or have any thoughts generally.

12 comments:

  1. I am currently moving most of my small holding into VLS 80 to built up some 'wealth'. My only worry is having all my eggs in one basket :)

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    1. Here's a snippet from a recent article on the LS 60 fund "All in all, you'll be invested in 11 industrial sectors and 12 different types of investment, 17 specialist funds, spread across 25 countries and some 18,000 individual shares and bonds". It does all come together in a single fund of funds but offers a very diverse portfolio.

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  2. The 'eggs in one basket' point is the one thing that puts me off VLS too. Otherwise it sounds like a good idea.

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  3. It's an excellent product other than, as you say, the home weighting in the equity portion and that's the only reason I don't own it. I still may but make do currently with Vanguard All World married up with 3 bond etf's on 60/40 basis.

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    1. I think that's fine so long as you remember to rebalance the equity/bonds from time to time and of course there is possibly additional expense in transaction fees. The big advantage of the LS funds are this is all done for you...a 'fire 'n forget' solution.

      Here's a recent article on the advantages of rebalancing

      http://www.thisismoney.co.uk/money/investing/article-4530676/Rebalancing-investment-pot-add-5-grand.html

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  4. An alternative I've been looking at is the HSBC Global Strategy Dynamic Portfolio C fund. It's similar to the LS 80% fund but at 0.21% p.a. It also has ~42% in US equities with ~5% in UK equities so more aligned to genuine world cap. I think they have similar funds with less equity exposure too.

    https://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=0GF7R

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    1. Thanks for flagging this one up C. The 'balanced' version seems to be a closer match to the VLS 60 and has a very similar track record over the past 5 yrs. In the current climate I may even be looking at their 'cautious' fund but I like the ~5% property element.

      Maybe I will post a comparison article in the coming few weeks.

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  5. I think you can do much worse than hold a Vanguard Lifestyle fund but I think I would prefer to hold one global equity and one global bond fund when I get to my drawdown phase. Holding 2 such funds would allow you to choose whether to sell equities or bonds which would be useful if one is up in value and the other down. Having said that, simplicity is often underrated!

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    1. I think that may work out a little cheaper on charges but would need a little more work with rebalancing. I think the main thing is to develop a strategy which works for you and which you can stick with. As you suggest, simple is good!

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  6. Thanks for the update. Have you had a look at the Blackrock Consensus series? They are similar funds of funds but they seem to be more actively managed but for no extra cost. The Consensus 85 fund always has between 40-85% shares with bonds, property and other diverse investments making up the rest. The main reason active management is worse than passive is the fees so on the face of it this looks like a way of getting some good value management that can be a little more agile than the static LifeStrategy. Thoughts?

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    1. Yes Joe, I looked at the Blackrock option when I was researching 'DIY Simple Investing' however the comparisons show the LS fund has provided the better returns over the past 5 yrs. I think the problem with active allocations is getting a team that can consistently make the right calls. With LS I select the level which I feel comfortable and know it will always stay at this level.

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  7. I have invested equal amounts in both HSBC Global Strategy Balanced Portfolio Accumulation and Vanguard LifeStrategy 60% Equity Fund A Acc. Tracking them using FT portfolio they have differed by less than 0.5% since start of 2017. Possibly HSBC has more flexible approach to asset allocation. I dont see any draw back or additional charges to having both.

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