- Vanguard is a pioneer of passive investing
- These funds provide exposure to a range of countries and markets
- Good diversification across company shares and corporate and government bonds
- These funds are not on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How it fits in a portfolio
The Vanguard LifeStrategy funds invest across a range of markets across the globe, providing exposure to thousands of company shares, corporate bonds and government bonds. They do this by investing in a number of passive funds, which each aim to track the performance of a particular market.
Each LifeStrategy Equity fund does what it says on the tin, investing a certain amount in shares and bonds. For example, 80% of the LifeStrategy 80% Equity Fund invests in global shares and the remaining 20% in bonds. There are five LifeStrategy funds, ranging from 20% shares (equities) up to 100%. The LifeStrategy 100% Equity Fund is the only one with no bond investments. A higher allocation in shares will increase risk, as they’re subject to more extreme price movements than bonds.
The funds could be used as a starting point for diversified exposure to global markets.
These funds don’t feature on the Wealth Shortlist as we currently have conviction in our existing multi-asset funds, and believe there are alternatives for passive global investment.
Vanguard is a pioneer when it comes to passive investing, having created the first retail index fund over 40 years ago. It now runs some of the biggest index funds in the world. Given its size, it has a large team with the expertise and resources to help its funds track indices as closely as possible, while having scale to keep costs down.
The LifeStrategy funds are run by a broad team of 80. This team are based across the globe meaning it can provide 24-hour portfolio management for each fund. An internal committee, chaired by Vanguard’s global CIO (Chief Investment Officer), reviews the funds’ allocation to different markets annually, and meet four times a year to discuss any trends, issues or concerns.
Vanguard also has a trading analytics team, which is responsible for ensuring the funds buy and sell investments efficiently and at a competitive cost. This involves analysing data from different brokers and banks. Lower costs could help the underlying funds track their benchmarks as closely as possible.
Each LifeStrategy fund is made up of several passive funds. The asset allocation of the underlying funds is decided by the internal committee and the Equity Investment Group ensure it’s maintained. The team has controls in place to keep the funds close to their benchmarks, including ensuring the right amount is invested in each stock or bond.
Within the shares part of the funds, the team targets 25% in UK shares and 75% in overseas shares. Within the bond part, the team aims for 35% in UK bonds, with the remaining 65% in overseas bonds.
The funds also invest into emerging markets. These companies have greater potential for growth over the long term but can increase the risk of the funds.
Global bonds’ price movements and income can fluctuate alongside foreign currency movements, adding an extra layer of risk to UK investors. To tackle this issue, the team use hedging to convert these bonds back to sterling. This involves using derivatives to offset some of the volatility of currency price movements, which adds risk when used. The process allows the bond portion of the funds some stability during more turbulent markets.
The share portion of the funds are not hedged, as shares generally provide higher long-term returns than bonds, making currency effects a less significant influence.
Vanguard also lends some of its investments in the underlying funds to other providers in return for a fee. This could increase returns and reduce costs, though this adds risk.
Vanguard aims to put the client at the forefront of everything it does, which drives its focus on quality, low-cost index products. Jack Bogle founded Vanguard in 1975 and set it up so it’s ultimately owned by investors. This allows Vanguard to redirect its profits back to investors in the form of lower fees, instead of paying dividends to external shareholders. Bogle believed in creating products that simply track the performance of a market rather than taking a shot at picking individual stocks which may beat them.
Dedicated teams at Vanguard also focus on environmental, social and governance factors (ESG). This involves voting on in the companies they invest in, in order to hold company managers and boards accountable. The LifeStrategy fund range is not ESG-specific but we’re pleased to see an active approach in engaging with companies to tackle stewardship issues.
All the funds within the LifeStrategy range have an ongoing annual fund charge of 0.22%. We believe this is reasonable when compared to other multi-asset funds in the market. Our platform charge of up to 0.45% per annum also applies.
The Vanguard LifeStrategy funds don’t have an official benchmark that they aim to track or outperform. Their goal is to maintain the various splits between shares and bonds and ensure those are kept to tightly.
Given Vanguard’s size, experience and expertise running index tracker funds, we expect the funds to keep to their various share allocations tightly over the long term.
Over the last ten years, the funds with the most investments in shares have performed best as global stock markets have performed strongly over this time.* The funds with more in bonds may have not grown as much, but they have served their purpose of reducing volatility and falling less when markets are rocky. We wouldn’t expect the funds with more invested in shares to hold up so well when markets fall. Remember, past performance is not a guide to future returns.
|Annual percentage growth|
| Mar 16 -
| Mar 17 -
| Mar 18 -
| Mar 19 -
| Mar 20 -
|Vanguard LifeStrategy 20% Equity||8.28%||1.45%||4.76%||2.29%||7.73%|
|Vanguard LifeStrategy 40% Equity||13.53%||1.56%||5.76%||-0.64%||14.27%|
|Vanguard LifeStrategy 60% Equity||18.97%||1.89%||6.99%||-3.57%||21.46%|
|Vanguard LifeStrategy 80% Equity||24.55%||2.14%||8.17%||-6.53%||28.85%|
|Vanguard LifeStrategy 100% Equity||30.29%||2.38%||9.30%||-9.38%||36.30%|
Past performance is not a guide to the future. *Source: Lipper IM 31/03/2021.