The £10.6bn Vanguard LifeStrategy 60% Equity fund was one of the most popular funds with investors last year and is one of the adviser market’s ‘go to’ funds from a portfolio construction perspective.
The Vanguard LifeStrategy 60% Equity fund runs a ‘classic split’ portfolio of 60 per cent equities to 40 per cent bonds and last year took in around
This popularity with investors has been underpinned by its performance which has seen it outperform the IA Mixed Investment 40-85% peer group’s 40.85 per cent gain since it launched in 2011.
Performance of fund vs sector since launch
Source: FE Analytics
Therefore, Trustnet asked market experts what investors could hold alongside Vanguard LifeStrategy 60% Equity fund in their portfolios.
ASI Global Smaller Companies
The first pick was the £1.4bn ASI Global Smaller Companies fund overseen by FE fundinfo Alpha Manager Harry Nimmo and Kirsty Desson.
As the Vanguard strategy provides investors with immediate diversification in their portfolios, due to its equity-bond split, investors should look for a fund which complements that strategy and “brings something new to the portfolio,” said AJ Bell’s head of active portfolios Ryan Hughes.
This is what the five FE fundinfo Crown-rated ASI Global Smaller Companies fund does, according to Hughes, with its “clear focus” on a concentrated portfolio of smaller companies from around the world able to grow faster than the market.
The fund was previously managed by Alan Rowsell who stepped down last year to launch a similar strategy at Premier Miton Investors.
But this hasn’t ‘interrupted’ the fund, so to speak, according to Hughes, since Nimmo managed the fund when it first launched in 2012, while Desson began working on the fund just over a year ago.
This means that while there is technically a ‘new’ management team in charge of the fund, it has a “strong continuity approach”, Hughes said.
The fund was also picked by Adrian Lowcock, head of personal investing at Willis Owen, who added that the small cap focused fund will “nicely complement”, the US large-cap exposed Vanguard option.
“Active management is essential for successful investing in smaller companies as most companies either fail to grow or just fail,” he explained. “For this reason, I have selected a fund where the manager [Nimmo] has a proven and successful strategy.”
Nimmo uses the Aberdeen Standard Investments’ proprietary Matrix process, which ranks companies on a number of factors – including growth, momentum, quality and value – with the team then focusing on companies with the highest scores to find investment ideas, Lowcock said.
He added: “Unlike many smaller company managers, Nimmo also believes in riding his winners and will back companies all the way as they grow from small to large businesses.”
The ASI Global Smaller Companies fund has made top-quartile returns over several time frames, including three and five years, and also performed strongly during 2020.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Over the past three years it’s made a total return of 46.56 per cent, outperforming the IA Global sector (33.41 per cent). It has an ongoing charges figure (OCF) of 1.05 per cent.
Personal Assets Trust
The next fund pick comes from Rob Morgan, pensions and investments analyst at Charles Stanley Direct, who selected the closed-ended Personal Assets Trust.
The Personal Assets Trust has broadly the same objectives as an investor looking for traditional 60/40 fund, according to Morgan, but with some differentiation to the Vanguard LifeStrategy at a stock level.
“It has an approach that balances growth and wealth preservation, which should resonate with investors seeking steady [and] less-volatile returns,” he said. “Yet, it also provides diversification and brings something different to a portfolio through individual stock selection and active asset allocation – in contrast to the passive approach of Vanguard LifeStrategy.”
The £1.4bn Personal Assets Trust is run by FE fundinfo Alpha Manager Sebastian Lyon, whose primary investing principle “is not losing money – rather than being concerned with relative performance against a benchmark”, Morgan said.
Indeed, a core element to the fund’s process is to make the highest returns possible while avoiding any level of risk which is significantly higher than the FTSE All Share index.
Looking at the trust’s volatility over several time frames and it has consistently been one of the least volatile portfolios in the IT Flexible Investment sector. Over 10 years it had the lowest cumulative.
Like all of Troy’s funds, the Personal Assets Trust puts capital preservation at its core, doing so by investing in quality blue-chip equities, index-linked bonds, gold and cash.
Focusing on these four main areas has worked well for the fund, according to Morgan.
He said: “This has proved a resilient combination as returns from these areas tend to move independently of each other rather than up and down in tandem. It is the sort of resilient holding that could be considered for part of the more stable core of a long-term portfolio.”
Launched in 1983, the Personal Assets Trust has made a total of 14.39 per cent over the past three years, outperforming both the IT Flexible Investment sector and the FTSE All Share.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
It currently has no gearing and is trading at a 1.1 per cent premium to net asset value (NAV). The trust has a 1.2 per cent dividend yield and ongoing charges of 0.86 per cent.
Baillie Gifford Global Discovery
The final fund pick comes from GDIM investment manager Tom Sparke, who chose the £2.2bn Baillie Gifford Global Discovery fund.
Sparke said that while the Vanguard LifeStrategy fund has generated good returns and is an “excellent, one-stop shop for a multi-asset portfolio,” it is missing out on some of the “real hidden gems of the investment world”, since it allocates based on market capitalisation.
These ‘hidden gems’ can instead be filled by the Baillie Gifford Global Discovery fund.
“Holding the Baillie Gifford Global Discovery fund alongside this would provide numerous benefits, not least diversification, active management and a long-term view,” said Sparke.
“The Global Discovery fund would provide access to smaller, faster growing companies as it seeks to invest in companies with innovative technologies or who have the potential to revolutionise the industries in which they operate.”
Following the ‘Baillie Gifford style’, the fund is growth focused, with a distinct bias to technology.
“While the risk in this fund is relatively high, the returns have shown that investors have been rewarded generously for holding the fund over the years, not least the last 12 months in which returns have been exceptional,” Sparke said.
Indeed, the Baillie Gifford fund was the eighth best performing fund across all sectors in 2020.
The fund has been run by FE fundinfo Alpha Manager Douglas Brodie since launch in 2011, with deputy managers Luke Ward and Svetland Viteva joining in 2018.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years the fund has significantly outperformed its IA Global peer group, returning 133.41 per cent. With an FE fundinfo Crown rating of five it has an OCF of 0.78 per cent.