The Vanguard LifeStrategy range is perhaps the most well-known and popular one-stop shop offering for investors that want diversification across a broad range of stocks and bonds without the need to buy several portfolios.
The funds put low-cost investing at their core, splitting allocations between fixed income and equities across a range of risk tolerances, all while steering clear of illiquid areas of the market.
It has been hugely successful, raking in assets under management all while producing strong returns, with the LifeStrategy 60% Equity fund the most popular option with investors. It has £14bn in assets and since it launched the fund has delivered 123.9% total returns.
The fund range has been consistently popular with UK investors since it launched in 2011, offering five passive index trackers split between equity-bonds, going from a 20% equity exposure to 100%, increasing by 20% each time, all with a low charge of 0.22%.
Below, Mark Fitzgerald, head of product specialism at Vanguard, and multi-asset product specialist Mohneet Dhir tell Trustnet how the range could get even cheaper in the future and why most active managers are not fit for purpose.
What is the process?
Dhir: LifeStrategy has a strategic asset allocation approach that is grounded by four key investment principles: goals, balance, discipline and cost. It invests in Vanguard Index funds which act as the passive building blocks.
The funds combine our knowledge on how markets perform in various environments over the long-term, considering market, investment and asset class behaviour to build the optimal product that would simultaneously give clients a buffer and a booster within turbulent markets.
This is why they deliberately have a home-market bias, meaning they have a higher allocation to the UK than global markets, because we found that all investors favour their domestic market to some degree.
Fitzgerald: Essentially, LifeStrategy can be the core of an investors’ portfolio and do most of the heavy lifting, providing diversification and market beta all at a low cost. Then if you do fancy taking a bit more risk then you should look at some low cost active funds.
It’s a nice and simple product that is easy to use and actually delivers.
The 60/40 split fell out of favour in the last bull run, has that changed post-Covid?
Dhir: If you look at how the 60% equity fund performed during the Covid sell-off and recovery it held up really well because of that bond allocation. That was the part that was being criticised pre-Covid but the traditional correlation between equities and bonds did actually play out; it is the ideal mix really.
There is always a role for a balanced portfolio because any investor, regardless of their risk tolerance, wants some security from equities to a degree, it’s human nature.
The low ongoing charges figure is a key element to this range, can it go cheaper?
Dhir: It’s gone down by about a third since it launched and we return excess profits back to clients with the aim of lowering fees for them, so it is possible. That’s entirely what the firm is developed to do.
Is this product suitable for environmental, social and governance (ESG) investors?
Dhir: We launched the Vanguard SustainableLife funds last year for investors who want to focus more on the environmental and social side of ESG. The LifeStrategy range would suit investors looking at the governance side.
We have a very strong stewardship programme, advocating the importance of using your shareholder votes and promoting better governance to help the sustainability of the business models going forward.
Fitzgerald: But to be clear, that does not make LifeStrategy and ESG investment strategy. That’s where you get into the world of very specific requirements around ESG which can be tricky because everybody's could be different.
If someone wants a very specific ESG outcomes then they're going to have to look at a ESG-specific product.
What are your thoughts on the active vs passive debate?
Dhir: We're definitely not against active, we're one of the largest active managers in the world and we think that both have a role to play.
Fitzgerald: But investors need to be very selective about the active funds they choose because there is a lot of absolute rubbish out there where the industry has pushed out far too many funds that don't do what they say they're going to do and charge too much.
Cost is one of the only things that consumers can control and one of the big things active managers do as a cohort is that they continually charge too much. Which means they have to get over that fee hurdle so they have to take on more risk to deliver returns, which tends to make their products more volatile.
On top of that, managers tend to style drift, especially when theirs is out of favour, and very few are disciplined enough to stay the course. There is only small group of them which fit our criteria and have that discipline and actually outperform.
What do you like to do outside of fund management?
Dhir: I really like photography, I studied it for my A-Levels and I have about 18 cameras. I don’t use all of them anymore but I’m trying to get my two year old into it. He knows how to say cheese now, which is great. I also love cooking – my mum started a family supper club before Covid.
Fitzgerald: I spent a lot of lockdowns cooking Japanese dishes with my kids and watching a lot of anime, which we still do now. And I’m an occasional golfer, but only when the weather is really nice.