Monday, 20 May 2019
Vanguard Lifestrategy 60 - Year 4 Update
It is now four 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. However, I am also becoming more aware of the risks posed by our climate emergency and in February I had a closer inspection of the funds exposure to fossil fuels which I am trying to avoid as I am wanting to more closely align my portfolio with my values and lifestyle. Here's a link to the article.
After some consideration of the options, I have decided to stay with the Lifestrategy for the time being but I have taken a step down from the VLS 60 to the VLS 40 to reduce my exposure to equities generally and to fossil fuels in particular. The problem for me is the 25% weighting of the equities element in the Lifestrategy range to the FTSE All Share Index which is overweight in oil & gas stocks - mainly Shell and BP. In addition, I have urged Vanguard UK to review their range of funds in relation to climate change. I was pleased to have an opportunity to speak with one of their senior management team earlier this month and I am hopeful of seeing the launch of a climate-friendly fund later in the year.
I have also diverted some of the proceeds from my VLS 60 into their SRI Global fund as a compromise. In addition, I have re-allocated some of the funds into HSBC Global Strategy which has a much lower weighting to the UK - less than 5% and therefore much lower exposure to the oil & gas sector.
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. The funds are frequently rebalanced - possibly daily.
I had a look at annualised returns for each fund from inception to end April 2019 (just short of 8 yrs):
LS20 5.74% p.a.
LS40 7.06% p.a.
LS60 8.34% p.a.
LS80 9.54% p.a.
LS100 10.67% p.a.
Vanguard LifeStrategy 40 Mix
I have therefore moved some of the proceeds from the 60 sale to top up my VLS40 which is the second most popular with UK investors and has £3bn of assets. Just looking under the bonnet of the fund -
40% equity comprised of Developed World (ex UK) 19.6%, FTSE UK All Share 10.0%, US Equity 5.1%, Emerging Markets 3.3%, Europe (ex UK) 1.3%, Japan 0.7% and Pacific (ex Japan) 0.4%
60% bonds comprised of Global 19.3%, UK Gilts 8.8%, UK Corp. Bonds 5.4%, UK Inflation-linked Gilts 5.8%, US Credit Index 5.3%, US Gilts 5.1%, Others 10%
The ongoing charges are 0.22% (worth noting its US equivalent charges 0.13%)
Performance of VLS 60
So, just to complete the figures following the sale - I made my initial purchase in my ISA with Halifax Share Dealing in May 2015. My average purchase price was £136.50.
The price four years on, to the point of sale was £186.67 so a gain of 36.7%. This is an average annualised 8.1% p.a.
By comparison, the total return for the FTSE All Share over the same period is around 24% so the combination of 40% bonds and a wider exposure to global equities in the VLS fund has worked very well.
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, the step down to the VLS 40 should help me to stay invested and this is why they represent a large percentage of my portfolio.
Here are the total return for the VLS60 for each of the last 7 full years :
The appeal of the VLS strategy is its simplicity and auto rebalance combined with good performance compared to other strategies. However, with climate change rising to the top of the agenda all around the world, many investors and fund managers will be assessing the impact of fossil fuel companies and evaluating the risk of continuing to hold such companies in their portfolio.
Personally, I do not wish to profit from investing my money in companies that continue to add to global warming and so holding multi-asset global index funds presents me with a challenge as I attempt to climate-proof my portfolio for the future.
The solution, which I have discussed with Vanguard UK, would be for them to offer investors a choice of fossil-free climate-friendly equity funds and balanced with a mix of gilts and green bonds. I will retain my VLS 40 until the end of this year in the hope they can deliver but time is of the essence - we have declared a climate emergency!
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!