Vanguard LifeStrategy ETF Review (And Alternatives)

Vanguard’s Life Strategy range of funds are intended to be a one-stop-shop for investors providing access to a standard split of diversified stocks and bonds at a cheap price. They have proved to be very popular with investors in the UK and for good reason.

HOW IS THE FUND CONSTRUCTED?

There are five funds in the Life Strategy range. Each fund has a different allocation to stock markets, ranging from 100% to 20% with the remainder in bonds. These off-the-shelf portfolios are low maintenance and automatically ‘rebalance’ to ensure the split of equities to bonds is maintained. 

Internally the LS funds simply allocated to existing Vanguard equities and bond indexes as Vanguard is one of the major provider of these indexes. For example, the Life Strategy 60% Equity fund allocates as follows at the time of writing: -

• UK Government Bond Index (18.6%)

• UK Investment Grade Bond Index (13.3%)

• UK Inflation-linked Gilt Index (8.1%)

• UK Equity Index (21%)

• FTSE Developed World ex-UK Index (33.6%)

• MSCI Emerging Markets Stock Index (5.4%)

Note: The bond allocation is about 40%.

A younger investor willing to risk a bit more volatility in the stock market might for a potentially better long term return might pick the Life Strategy 80 Fund. A more risk-averse investor (or someone approaching retirement) might be down to 20% equities and might go for LS 20. Most of their assets would be in less volatile bonds and they would accept lower expected returns over the long-term as the trade-off.

COST / FEES

The fund’s fees range from 0.2% to 0.3% (at the time of writing) depending on which one you invest in.

MAINTENANCE, REBALANCING & CONTRIBUTIONS

Although the Vanguard funds automatically rebalance the portfolios every day, a committee of people decides whether the allocations should change every three months – for example more money in emerging markets and less in the US. So there is an element of active management but this is still an ETF so its pretty good value for money.

PERFORMANCE & BOND ALLOCATION

At the time of writing, Life Strategy 80% fund, which has 80% invested in global stock markets, has returned 10.4% a year for the past five years. These funds which invest in these standard globally diversified indexes will all deliver the same (or similar) return so it isn't really worth comparing performance in my opinion. Over the longer term, which is what retail investors like us are interested in, there just won't be much of a difference. 

The main decision a retail investor will need to make when investing in the LF funds, is what their bond allocation should be. In theory, that should be based on how close someone is to retirement, with a greater allocation to bonds the closer to retirement. However, that theory is being challenged by financial advisers, as bonds are not always the portfolio volatility 'dampener' that they are claimed to be and are also, over the longer term, guaranteed to deliver a lower return than equities.

FSCS Protection

Vanguards investors investments are held in nominee accounts so in the unlikely event of Insolvency, investor assets would be returned fairly easily. Vanguard investments are covered by the FSCS up to £85K in the extremely unlikely event if Vanguard UK going under.

WHAT ARE THE ALTERNATIVES TO THE VANGUARD LIFESTRATEGY ETFS?

Vanguard Life Strategy is one of the fastest growing fund ranges in this sector, but there are alternatives:-

BlackRock Consensus 85 Fund

Asset management giant BlackRock offers a set of funds called Consensus that do a similar job to the Vanguard funds but with maybe a more flexible allocation to stock markets. For example, the BlackRock Consensus 85 (GB00B8D7RH96) fund can be between 40% and 85% invested in shares. The funds typically cost 0.23%.

Morningstar gives this fund 4 stars out of 5:- CLICK HERE (new tab)

Trustnet give a fund ‘crown’ rating of 3 out of 5 for this Blackrock fund:- CLICK HERE (new tab)

You Invest platform link for the BlackRock Fund:- CLICK HERE (new tab)

AJ Bell Starter Funds

AJ Bell offers a range of standard globally diversified "Starter" funds running from Cautious to Adventurous. Don't think that because they are called "starter" funds they are in any way inferior to other types of funds. They are simply AJBells version of Vanguards Life-strategy funds.

The Cautious fund contains bonds, cash-like assets, and a smaller allocation to stocks. The Adventurous fund is about 90% bonds with the rest in bonds. Annual AJBell platform costs are capped at 0.5%, but with no custody charge and no charge to buy the funds on the AJBell  platform.

AJBell Starter funds on the AJBell You Invest platform:- (click on the image links in the AJBell page below for Cautious, Balanced, Adventurous, or Income...)

AJBell starter funds CLICK HERE (new tab)

Morningstar & Trustnet links: -

• No rating on Morningstar:- CLICK HERE (new tab)

• No rating on Trustnet:- CLICK HERE (new tab)

ALL UK ONLINE BROKER'S WILL HOLD the VANGUARD LS FUNDS

Vanguard funds are available on most platforms and at the same cost as they do on the Vanguard platform itself. The only difference in terms of returns then will be the online broker/platform fees. Vanguard is pretty competitive on that front.

• AJBELL Vanguard LifeStrategy 80% Equity Fund A Inc:- CLICK HERE (new tab)

(Note this is the ‘Income’ version that pays the yield as an income payment as opposed to the ‘Accumulation’ version which automatically re-invests income/dividend payments into the fund to compound returns.)

Morningstar gives this fund the highest rating of 5 stars out of 5:- CLICK HERE (new tab).

Trustnet give a fund ‘crown’ rating of 4 out of 5:- CLICK HERE (new tab)