Monday, 12 March 2018

Vanguard UK Equity Income - Yr 3 Update


It is now 3 years on since my initial purchase of this UK income index fund.

The Vanguard fund tracks the FTSE UK Equity Income Index. The concept is fairly simple - to give investors access to a broad range of dividend-paying securities from across the FTSE 350, while reducing the risk of being overly invested in a small number of high-yielding shares or particular industry sectors by limiting the percentage of the index invested in any one company or industry.

The Vanguard fund holds around 120 companies - the top ten holdings include all the usual suspects - Vodafone, Glaxo, Lloyd Bank, BP, BATS, National Grid etc.

Ongoing charges are 0.22% and also a one-off dilution levy of 0.40% on purchase. In addition, my broker AJ Bell levy an annual platform charge of 0.25% of the total value of the fund.


Performance

My initial purchase price in May 2015 was £177.50 - by last March it had risen to £181. However, it has retreated over the past couple of months and is back to just below my entry price, currently £174 and a total return of just 1.0% over the past year (incl. income).

By way of comparison, the total returns for some of my UK income trusts over the past year -

City of London  2.2%, Edinburgh -7.1%, Finsbury Growth & Income  10.6% and Temple Bar 2.5% (average 2.0%).

At the start of the year I took the opportunity to sell off part of my Vanguard holding as I am looking to reduce my UK equities and moving down the risk scale with more globally diverse multi-asset funds being introduced to my portfolio. I have invested the proceeds between HSBC GlobalStrategy Balanced and Royal London Sustainable Growth fund.

3 Yr Comparison v HSBC Global Strategy
(click to enlarge)

Income

The fund has so far provided me with income payments of 776.92p in 2015, 775.65p in 2016 and a nice 10% increase to 857.87p in the past year - which gives a current yield of 4.8%. However, the income was inflated by the weak level of sterling in 2017 so I am expecting a reduction this coming year. Dividends are paid out half yearly in June and December. 

The income distribution represents the combined dividends received from all holdings in the fund (less costs and fund charges) so, unlike investment trusts which hold reserves to smooth out the income payments, I do not know exactly what payment will be received in my ISA until it actually arrives.

It’s early days - just three years since purchase but I am happy to continue with the remaining holding of this income fund which seems to be doing the job required for my income portfolio.

As ever, this article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR.

15 comments:

  1. Would be interested to see the comparison of the Equity Income vs the Vanguard standard FTSE tracker. Surely the main growth in the HSBC Global Strategy comes from the US and European parts?

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  2. Rob,

    It looks like the Vanguard All Share Index is ahead by around 10% over the past 3 yrs compared to the Income fund.

    The HSBC fund offer around half the natural yield but is approx 15% ahead of this fund AND is more diverse with bonds and property in the mix.

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    1. Thanks for the reply. Does that take into account the dividends? What if you were doing it for income - i.e. not re-investing - would the Equity Income win over a straight tracker income fund - isn't that the point of it?

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    2. I just had a quick look at the respective accumulation funds for a comparison. The all share fund will offer a lower yield/distribution for sure but my focus is on total return. I would prefer a fund with a higher TR and lower yield...as for example, I hold my VLS60 in the acc units. Most income investors would not consider it for their portfolio with a yield of around 1.4% but a steady 9% average over the past 6 years with the option to sell off 4% for 'income' does a good job for me.

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  3. I think most people will be best served by a multi-asset fund such as HSBC Global Strategy, Vanguard Lifestrategy etc. Personally my biggest enemy in investing logically is myself. Always thinking about tinkering with allocations, looking at different funds and ETF’s. All of my work pension and iWeb ISA are thankfully now in Baillie Gifford Managed B fund. Since I recently moved to that one fund, ive not looked at the balances, even during the recent correction.
    In April I’m going to automate monthly payments into a Vanguard ISA (Lifestrategy 80) and do my best to not even look at the balance for the next few years.
    The problem with single country funds such as Vanguard UK Equity is (me personally) you are periodically trying to make a judgement on whether to keep/increase/decrease your allocation to it, knowing full well that regardless of how much information you have, you’re basically guessing.

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    Replies
    1. I agree with you about multi-asset approach and this has been the direction for my portfolio over recent years. I will have a look at the BG managed fund as I like the set-up there and recently had a look at their Diversified Growth fund for a friend.

      Good luck with your 'no tinkering' in the future...still something I am working on!

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  4. Hi

    As you know I'm not a fan of Passive/tracking investing. I accept that I will not always get correct my calls on Active funds, but I'm prepared to take that risk and so far the results have come through. I predominantly invest in the UK both in Shares and Investment Trusts/Funds. With the size of my portfolio (£1M plus) I can't afford to get the calls wrong as the portfolio provides me with my income and I follow a natural dividend withdrawal strategy. My aim is to provide an income of 4% of the portfolio with an increase in capital value of 3-5% per annum. I favour Funds plus individual shares predominantly as Investment Trusts generally don't meet the above requirements and I have never seen the point of the 15% hold back in reserve; I would rather have the dividends and any surplus banked into my savings account under my control and not someone elses.

    I have done a quick skim through the UK Equity income funds/ITs that i hold and only 1 of them has failed to achieve a positive gain over the period - Neil Woodford who appears to be going through a very rough period.

    I think the key is to adopt a strategy that you feel comfortable with and that works for you; but for me that could never be a Passive one with the requirements I have as given the performance of the UK market since 2000 it would never achieve its aims. I do think for a significant number of people a Passive strategy does work for them due to a number of reasons, but it is not one that would ever work fo me

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    1. Gareth,

      Good to hear from you and totally agree on everyone finding a strategy which works for them and with which they feel comfortable - active or passive.

      I started off as active with shares and investment trusts but over recent years, I have increasingly embraced the multi-asset low cost global index such as Lifestrategy so I have a foot in both camps.

      I would say my core now is the VLS with my remaining ITs as satellites and this feels like a good combination for me.

      As for Neil Woodford, he was regarded as one of the few star managers who could consistently beat the average for many years but maybe his star is beginning to fade a little. He did well for my holding in Edinburgh for many years but it has been struggling over the past year with Mr Barnett at the helm. I will probably do another comparison of my active v passive holdings later in the year but last June the ITs were ahead by an average of 3% p.a. over the previous 5 years.

      I hope your particular funds continue to deliver for you.

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  5. Hi

    Are you going to do blog updates about the two new funds you have added to your portfolio,
    mentioned above.
    If not, could you just name (exactly) the specific details of the new funds.
    For instance there are a few different 'focused' Royal London Sustainable Growth funds.

    Keep up the great blog

    Matt McK

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    Replies
    1. Thanks Matt. I have linked the HSBC fund in the article above so will not repeat however I do intend to post an article on my new purchase of Royal London fund which is a 'steady eddie' with predominantly fixed interest and just 25% equities - mainly UK and US.

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  6. With your mix of funds and etf's how do you keep track of you bond/equity split or don't you?

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    1. Good point Ruby and the answer would be to create a spreadsheet which can total up the equities/bonds/property holdings for each holding. Mine needs updating following recent additions however by selling equities and replacing with the likes of Lifestrategy 40 and other multi-asset funds, I know the direction of travel even though I do not know precise percentages.

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  7. On the subject of multasset funds I have looked for and failed to find a multi bond fund that would include Govt. bonds, corporates, International bonds, Index linked bonds, etc. Any ideas or suggestions appreciated. Most bond heavy funds include around 20% equities but not a pure bond fund.

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    1. Maybe have a look at the Vanguard Global Bond Index as a possible option...here's a link

      https://www.vanguardinvestor.co.uk/investments/vanguard-global-bond-index-fund-pound-sterling-hedged-accumulation-shares

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    2. Thanks, I allready have some money in this fund and it is a very good bond fund. What I am looking for is something like the Hermes Multi Asset Inflation but with no equities.

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