Portfolio Construction | All Insights
Vanguard LifeStrategy Review – A Retriever In A Babushka Doll
September 11, 2023
Comment Article On Forum
September 11, 2023
Comment Article On Forum
Your friend’s stock first skyrocketed, then hit a plateau, and ultimately lagged behind the market. Sound familiar? That’s because it’s a tale as old as time. He’s now so attached to it, he can’t bear to sell. Imagine a world where he didn’t agonise over every buy or sell.A world without the balancing act of portfolio rebalancing.He probably hasn’t even heard of Vanguard LifeStrategy. And with the hefty fees his financial advisor charges, that’s hardly surprising.Enter a quasi Golden Retriever Portfolio in a single fund. Let’s dive into why every investor should at least give it a glance.
– All-in-One Solution: Combine Equities and Bonds with an annual fee of 0.25% in Europe and 0.22% in the UK.
– Tax, Time and Cost-Efficient – Portfolio rebalancing can trigger tax events and transaction fees. Automatic rebalancing within Lifestrategy Funds does not involve either.
– Know Your Fund: In the UK, Vanguard Lifestrategy is available in Mutual Fund format. In Europe, the funds are UCITS ETFs. UK Investors can also benefit from them.
– UCITS ETFs Are Truly Passive – Equities include market allocations to different countries. Bonds are currency-hedged to EUR.
– UK Mutual Funds? There’s a Home-Bias. We don’t like the fact that 25% of Equities is allocated to the UK, vs a 4% UK market share in Global Indices.
– Choose Your Risk – ETFs exist with 20%, 40%, 60% and 80% Equity allocation.
– What’s the reward? Long Term expected returns range from 3.9% to 7%. Inflation-adjusted returns are expected to be between 1.5% and 4.6%.
– Understand the limitations – Lifestrategy Funds aren’t target funds. Think also about tailoring your asset allocation, to protect from a 1970s scenario? It all depends on your investment horizon and risk appetite.
– Here is the full analysis
The Magic of Fund-of-Funds
It may help someone you know
The Babushka doll Concept
Learn more about these funds to help a family member when they ask about the best investment. Whether it’s a bull or a bear market, it could save them lots of money.
Until 2020, it was fairly easy to buy the Equity portion of a Golden Retriever portfolio – a Global ETF. But combining it with bonds in one fund was not possible. At least not in Europe. Bonds can reduce your family member a lot of stress.Today, the Babushka doll also includes the Bond portion of a Golden Retriever Portfolio. But Why Not Yourself? It may not necessarily be your cup of tea – I get it. Some investors like flexibility.While the these ETFs may not fulfil all your needs, they can still serve as the backbone of your portfolio. You can then add other investments around this core fund. Should you consider them? Here are some typical use cases, and two considerations explained in more detail that may not be obvious.
– You want an established and reliable ETF provider
– You are looking for simplicity, cost-efficiency
– You don’t want to rebalance your portfolio
– You want to potentially lower taxes
– You want another asset allocation, e.g. a gliding path allocation
– If you’re a UK Investor, and don’t like a home bias
Potentially NOT Suitable
– You want to customise your portfolio or tax situation
– You want to reduce TER to the absolute minimum
– If you are a Tax alpha harvester
What is Tax Alpha?
Rebalance with Ease: Lifestrategy Funds rebalance themselves. What’s that mean for you? Underperformers get bought, while high-flyers get trimmed.
Avoid the Tax Sting: But usually, such moves mean capital gain taxes. Lifestrategy’s magic? Rebalancing happens internally, within the fund. So, kiss those tax events goodbye!
Cherry on top: There are also zero trading commissions and no time wasted. It’s all on autopilot.
If you want to retire in southern Europe
As we will see, UK Funds have a home bias. But, the European ETFs are hedged to EUR.
Are there still use cases for UK investors and those that are outside the Euro-zone? Potentially yes.
Think UK investors are out of the UCITS game? Not if you’re planning a sun-soaked retirement in Marbella. ETFs might be your ticket over UK Mutual Funds.
And for Our Continental Friends: Let’s say you’re Polish, but Sicily’s calling your name for those golden years. With Bonds set in EUR, your future’s looking bright (and sun-drenched).
Be Careful, there are two Fund Types
Vanguard LifeStrategy Funds aren’t newbies:
Anglo Roots: US got them in ’94. UK in 2011. Canada? 2018. All in Index Mutual Fund format.
European ETF Twist: Europe got a taste of them in 2020, but with a twist – as UCITS ETFs.
Mutual Funds vs. ETFs: What’s the Deal?
Think of Mutual Funds and ETFs as a Babushka Doll. They may not be painted in the same colour, but may both contain the same Golden Retriever inside: An ETF (Exchange Traded Fund) – is a basket of securities that you can buy or sell on a stock exchange throughout the trading day at fluctuating prices, much like individual stocks. It can contain both Global Equities and Bonds. A Mutual Fund – pools money from many investors to purchase Global Equities and Bonds, but its price (or NAV) is determined only once at the end of the trading day. So, ETFs may incur a broker commission but are more liquid. Outside of that, you could be getting the same exposure. They can both hold the same Stocks and Bonds, and have the same returns.
European ETFs vs UK MUTUAL FUNDS
UK Mutual Fund
UK and EU Investors
Traded on Exchange
End of Day
ETF Management Fee
(Data from Bankeronwheels.com)
Are you buying a bulldog Or a retriever?
But Are Lifestrategy Mutual Funds and ETFs really the same?
UK Mutual Fund Babushka
UCITS ETF Babushka
UK MF Babushka
You’d think Vanguard might house identical Golden Retrievers inside each Babushka. That’s an elegant blend of Global Stocks and Bonds.
But here’s the twist: Vanguard had other plans.
For some reason, Vanguard believed UK Investors have a soft spot for local giants – think BP, Shell, and AstraZeneca. So, while both Babushkas may be painted in different colours (and that’s okay), the surprise is the dog breed inside. Recommend the UK LifeStrategy Mutual Funds, and your family might raise an eyebrow. They were expecting a Retriever, but they might find an English Bulldog.
But judging by assets under management, many UK investors seem okay with the Bulldog surprise. We? We’ll take the Retriever any day.
Lifestrategy Mutual Fund vs ETF
UK Mutual Fund
Hedged (to EUR)
Hedged (to GBP)
Total Size (m$)
(Data from Bankeronwheels.com, as of September 2023)
What All Lifestrategy Funds share in common
What are the common characteristics of LifeStrategy Funds? All the Lifestrategy ETFs have the same two building blocks:
Bonds – Vanguard Global Aggregate Bond UCITS ETF
Equity – Vanguard FTSE All-World UCITS ETF
All LifeStrategy Funds are rebalanced regularly, so that the asset allocation remains fixed over time.
What risk profiles Can you choose from?
LifeStrategy Funds differ by the asset allocation or the proportion of Equity and Bond ETFs.
Vanguard recommends 60% and 80% Equity ETFs for investors with higher risk profile and 5+ years investment horizon.
Risk Appetite vs. Equity Allocation
Are Vanguard LifeStrategy Funds the same as Golden Retriever Portfolio?
Yes, Equity and Nominal Bonds are equivalent. The portfolio doesn’t contain a dedicate Inflation hedge, though.
If you X-ray the UCITS ETFs and you see more funds, don’t worry. There