Friday, 18 May 2018

Vanguard Lifestrategy 60 - Year 3 Update

It is now three years on since my initial purchase of this all-in-one fund in May 2015 so time for another annual update.

I believe the average investor could do well from adopting a very simple, no-frills low cost diy strategy which makes sense, which can be tailored to fit in with a variety of attitudes 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’.

A One-Stop Solution

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

They were introduced in June 2011 and provide investors with a neat solution to match their asset allocation between equities and bonds -  from 20 to 100. The number represents the level of equities held in each fund, therefore the LS40 will have 40% equities and 60% bonds; the LS80 will have 80% equities and 20% bonds.

The single funds LS20, 40, 60 & 80 will hold a blend of around 17 or so of the Vanguard stand-alone equity and bond funds. Each of these will hold many hundreds of individual stocks or bonds - for example, just 1 of the 17 constituents is the FTSE Developed World (ex UK) fund which alone holds ~2,000 stocks & shares.

Therefore, by holding just a single LifeStrategy fund, your portfolio is widely diverse with over 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 - possibly daily.

I had a look at annualised returns for each fund from inception to end April (just short of 7 yrs):

LS20   5.86% p.a.

LS40    7.24% p.a.

LS60    8.54% p.a.

LS80    9.76% p.a.

LS100 10.9% p.a.

Vanguard LifeStrategy 60 Mix

The VLS60 is the most popular with UK investors and has £3.8bn of assets. Just looking under the bonnet of the fund -

60% equity comprised of Developed World (ex UK) 19.3%, FTSE UK All Share 15.3%, US Equity 13.5%, Emerging Markets 4.9%, Europe (ex UK) 4.0%, Japan 2.3% and Pacific (ex Japan) 1.1%

40% bonds comprised of Global 19.1%, UK Gilts 5.8%, UK Corp. Bonds 3.6%, UK Inflation-linked Gilts 3.7%, Others 7.5%

The ongoing charges are 0.22% (worth noting its US equivalent has charges 0.13%)


So, how has the fund performed? I made my initial purchase in my ISA with Halifax Share Dealing in May 2015. My average purchase price was £136.50.

The current price is £178.67 which is a gain of 5.4% over the past year and three years on is up by 30.9%. This is an average annualised increase of 9.4% p.a.

By comparison, the total return for the FTSE All Share over the same period is around 20% so the combination of 40% bonds and a wider exposure to global equities in the VLS fund is working very well so far.

Of course, the bonds provide a much less volatile ride compared to a fund with just equities which makes it easier to remain invested. As I am not the type of person who can handle too much volatility, this fund (and my recent addition of the VLS 40) help me to stay invested and this is why they represent the core of my portfolio.

The total return for the LS60 for each of the last 6 full years has been all positive :

2012   9.29%,
2013 11.13%
2014   9.36%.
2015   2.53%
2016 18.27%
2017   8.67%


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 units each year to provide the 'income' I require. In 2016 I actually sold 8% of my holding due to the one-off boost from the fall in sterling post June 23rd and this has provided my income for the past two years. This year I will sell off a further 4% from the 8.6% rise in 2017 - so far I have not needed to dip into the cash buffer.

The appeal of the VLS strategy is its simplicity combined with good performance 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!

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

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

Monday, 14 May 2018

Scottish Mortgage - Full Year Results

Scottish Mortgage is an actively managed, low cost investment trust, investing in a high conviction, global portfolio of companies. The managers aim to achieve a greater return than the FTSE All World Index (in sterling terms) over a five year rolling period.

This investment trust was added to my SIPP portfolio at the start of 2017 at the initial purchase at 338p. A year later, following a little turbulence in the share price, I added SMT to my ISA portfolio at 415p. The share price has advanced to currently 505p.


The trust has today issued results for the full year to end March 2018 (link via Investegate). Share price total return for the past year is up 21.6% compared to just 2.9% for the benchmark FTSE All-World index.    

Scottish Mortgage has increased total net assets to more than £6bn making it one of the UK's largest investment trusts. In 2017 it was promoted to become the only investment trust to be listed in the FTSE 100.

The managers, James Anderson and Tom Slater run a conviction portfolio of around 70 to 80 shares. The result is a portfolio dominated by big holdings in some of the companies involved in the world of social media, the internet, healthcare, eco-friendly energy and gene therapy.

The top ten holdings account for 53% of the portfolio and include Amazon 9.9%, Tencent 7.5%, Baidu 4.0% (China's equivalent of Google), Alibaba 7.5%,  Tesla Motors 4.9% and Illumina 6.5%. Some 10% of the portfolio is invested in unquoted companies - Dropbox, peer-to-peer lender Funding Circle and airbnb to name three I am familiar with.


Slater is convinced that Amazon, its single biggest position in the portfolio, remains an ‘absolutely massive’ opportunity despite a five-year share price rise of  370%. He points out that the $100 bn retail sales it generated in the US last year was under 2% of the market and less than a third of retailing colossus Wal-Mart. Yet it was catching up with huge investment in deliveries leaving its traditional rivals in the dust.

Slater highlighted four areas where Amazon had demonstrated its huge growth potential in 2017: US fashion, food, India and web services.

In fashion the e-commerce giant forced Nike to cut a deal and start selling its trainers and clothes through Amazon, wiping $1 bn off the shares of sports retailers when the tie-up was announced in June. That was nothing to the $20 bn knocked off grocery stocks with Amazon’s unexpected acquisition of Whole Foods in the same month.

In India, Amazon had showed it had learned from its difficult experience in China and quickly established market leadership, much to the discomfort of its local rival, Flipkart, one of the smaller unlisted positions that Scottish Mortgage has established in the past three years.

Meanwhile, the potential scale of Amazon Web Services was growing all the time as companies moved their computing operations to the Cloud. ‘This is more of a winner-takes-all market than we previously assumed’ said Slater.

One of the questions investment legend and hedge fund manager Seth Klarman would ask of any fund manager is 'did you hold your nerve during the market turmoil of 2008/09'?

 Although the trust suffered heavy falls during these dark months, Anderson says that enduring this period was key to all the success of the next decade. Apple was purchased on just 3x earnings and they held on to Amazon at the price of $40...currently $1,600...that's a 40 fold increase in just under a decade! The manager says there is nothing he is more proud of in his entire career


Some 22% of the trust's portfolio are allocated to China. China's economy is growing at a rapid pace as it becomes increasingly consumer-led. It is now the second largest economy in the world behind USA and has been the largest contributor to global growth since the meltdown of 2008. Annual growth is averaging 7% each year and over just the past 10 years, real terms household income has increased by 120% and more and more of the huge population of 1.3bn continue spending (and also saving).

Tencent, the Chinese internet giant behind the WeChat messaging app (over 1bn users), has surpassed Facebook in value after it became the first company in China to be worth more than $500bn.
In addition it is a major shareholder in the US social media group Snap.
It has now become the world's fifth-most valuable listed company, disrupting the hegemony of the US tech giants.

Tencent is little known as a consumer name in the West but its WeChat app dominates in China, where Facebook, Twitter and Google are banned.

Baidu is China's leading search engine and has recently started selling 'smart home' products similar to Amazon's Echo/Alexa as well as a personal robot marketed as 'Raven'. They are also looking at more ambitious technology such as driverless cars..

Scottish Mortgage offers a clear, consistent and simple proposition: a portfolio of long term investments in what the managers believe to be the best growth businesses, operating in any industry and anywhere around the world.

Many of the companies held in the trust's portfolio are disrupting the traditional ways of doing business. They create new markets or impact significant changes on old markets in a wide range of industries such as auto, health, advertising, retail and manufacturing which are transformed by advances in the technological revolution.

Over the past ten years, the trust has delivered a return of 334%. Although this is essentially a global growth trust, it is worth noting it has increased its dividend every year for the past 34 years. Income from the underlying holdings no longer covers the dividend so the board have agreed to provide the difference from capital to continue the progressive pay out. The increase this year will be 2% making a total of 3.07p. However, due to the significant share price appreciation, the current yield is 0.7%.

Further, the ongoing charges have been reduced and have fallen from 0.44% to 0.37% which makes it one of the most competitive trusts on offer.

Obviously I am pleased with progress since my purchases - 50% SIPP and 22% ISA.... I am just sorry I did not purchase earlier. This actively managed investment is one of the satellites which complement my core passive index holdings comprising mainly Vanguard Lifestrategy 60 & 40.

I have also recently started an investment savings plan for my grandchildren using this trust via Baillie Gifford. The opening lump sum has gained 15% in the past month so we are off to a good start.

For now the current holdings can return to the bottom drawer.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!