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Was Vanguard Life Strategy Performance Poor in 2017
Mickey
Posted: 03 January 2018 10:17:34(UTC)
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I am looking at the Vanguard Life Strategy funds as a possible investment for my wife to hold. She is looking for something with no work involved, easy to manage etc. Currently, we hold Investment Trusts.

Looking at the VLS 60% or 80% options, I see that their performance in 2017 appears to be quite poor compared to our IT portfolios. Returns were less than half of what I had expected to find from Vanguard.

I find the John Baron IT portfolios quite interesting for IT's though usually these also underperform our own which take on more risk as I tend to hold 7-10 rather than the 23 or so held in the JB options. I will do some backwards-looking research later but wonder if experience suggests this is just a blip for Vanguard or over-performance elsewhere?

VLS 60 in 2017 = 8.7%
VLS 80 in 2017 = 10.9%
John Baron Summer in 2017 = 19.7%
John Baron Autumn in 2017 = 17.0%

Any thoughts would be appreciated as we decide our future path for investing, perhaps the Vanguard Life Strategy is a less risky option which would suit going forwards.
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Sara G
Posted: 03 January 2018 10:31:04(UTC)
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I also did a bit of a double-take when I checked performance for those two Vanguard funds. Even a 100% equities all-world tracker did quite poorly in relative terms (12.63%), so in retrospect 2017 was arguably a good year for active management.

In the long run though, presumably the theory is that it all balances out and / or that it will at least prevent the investor from sabotaging themselves through poor decisions. For someone who does not want to monitor their investments too closely, Vanguard may still be a good option.
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King Lodos
Posted: 03 January 2018 11:54:36(UTC)
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In principle you'd say Life Strategy *was* the performance of the market – being that it basically is the market.

So for all the funds and investors who outperformed it in 2017, others underperformed .. Another thing to factor in with ITs is leverage – which is a bit of a 'cheat' way to outperform – and of course NAV discounts (which, long-term, balance out).

Where passive as a strategy works is over the long-term .. First fee-compounding – a 1.5% hurdle is not much to clear in a single year; but over many years, it adds up to 30, 40, 50% of your returns; which keeps the pressure on outperformance, through many market cycles ... And the biggest factor is investor behaviour – passive is part of a Zen-like strategy of giving up control, and not needing to fiddle .. That's what makes it the right advice for most people
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The Spanish Inquisition
Posted: 03 January 2018 12:05:29(UTC)
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Could this under performance be just down to dollar strength? While the S&P 500 was making new highs many will have noted that the equivalent etf's in GDP were actually falling from their peak valuations. The Lifestrategy 40, 60, 80 & 100 funds appear to be set up for UK consumption, VASGX, a US product similar to an LS80 product is up 18% YOY. Also don't forget that your IT's are allowed to employ debt to varying degrees to boost returns.
As Sara G pointed out these things tend to even out over time......if you have enough of that valuable commodity ; ))
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Jeff Liddiard
Posted: 03 January 2018 12:56:51(UTC)
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Sara G;54878 wrote:
I also did a bit of a double-take when I checked performance for those two Vanguard funds. Even a 100% equities all-world tracker did quite poorly in relative terms (12.63%), so in retrospect 2017 was arguably a good year for active management.

In the long run though, presumably the theory is that it all balances out and / or that it will at least prevent the investor from sabotaging themselves through poor decisions. For someone who does not want to monitor their investments too closely, Vanguard may still be a good option.


I think the 12.63% would be very acceptable to the people who don't know enough about the equity markets and choose to take the passive route where they don't have to worry about it or tinker with it, especially when compared to the low interest rates they'd achieve in savings accounts. I'm seriously thinking about it for myself for the bulk of my investing money!
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chubby bunny
Posted: 03 January 2018 14:03:00(UTC)
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He had a good 2017, but VLS80 beat both Summer and Autumn in 2016 by 13.15% and 12.55% respectively. That said, he's outperformed VLS80 4 years out of 6 and the WMA benchmarks 8 out of 10, which ain't too shabby.
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Jim S
Posted: 03 January 2018 14:03:17(UTC)
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Out of interest, what do people think about the non-equity part of Lifestrategy & how 'safe' it is?

Eg. For LS60, does the non-equity 40% - which I guess is mostly in gilts, bonds etc - really make it more defensive than LS100 with 100% equities, in the current climate of high bond valuations?

Or do you think its safer to use LS100 with most of your portfolio, and then choose the defensives yourself (gold etf, hawksmore vanburgh or whatever) and rebalance them annually yourself?






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Mickey on 03/01/2018(UTC)
King Lodos
Posted: 03 January 2018 14:23:36(UTC)
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Jim S;54899 wrote:
Out of interest, what do people think about the non-equity part of Lifestrategy & how 'safe' it is?

Eg. For LS60, does the non-equity 40% - which I guess is mostly in gilts, bonds etc - really make it more defensive than LS100 with 100% equities, in the current climate of high bond valuations?

Or do you think its safer to use LS100 with most of your portfolio, and then choose the defensives yourself (gold etf, hawksmore vanburgh or whatever) and rebalance them annually yourself?


That's the kind of question the best hedge funds would struggle to answer.

I'd probably go for a straight FTSE World Tracker, rather than LS100, if I were going 100% equities .. Life Strategy has a higher fee than a regular tracker, which I think is justified if it's going to be rebalancing for you ... The hardest thing in the world can be selling bonds, when they're doing really well, to buy stocks, when they're doing really poorly, and this is what one of these funds will do.


On bonds in this climate .. Last time bonds got this expensive, around the 1930s they spent the next several decades returning effectively nothing in real terms .. But what they should still do is act as a hedge against falls in stocks – so when value is fleeing stocks in the short-term, it's likely to find its way into bonds.

Some big investors, like Cliff Asness and Ray Dalio, still think you should own some bonds for this purpose, but probably not a major allocation .. You want to balance the hedging capabilities with a potential performance drag .. I wish they did a Life Strategy fund with 10% in gold – but that's probably a bit speculative, as no one ever knows if gold still functions like that, until it's needed.


I must say I'm coming more round to the idea of just investing in defensive and bond-like stocks .. The Fundsmith approach .. I don't know if it can keep outperforming – that's where I've been more on the fence – but my anxiety with holding trackers (and funds in general) is that you're holding a lot of bad companies .. and offsetting that with historically very expensive bonds doesn't make me feel much better
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Sara G
Posted: 03 January 2018 15:26:07(UTC)
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King Lodos;54901 wrote:
[quote=Jim S;54899]


I must say I'm coming more round to the idea of just investing in defensive and bond-like stocks .. The Fundsmith approach .. I don't know if it can keep outperforming – that's where I've been more on the fence – but my anxiety without holding trackers (and funds in general) is that you're holding a lot of bad companies .. and offsetting that with historically very expensive bonds doesn't make me feel much better



As I'm on leave and the weather was a bit rubbish yesterday I watched the 2017 Fundsmith Investor meeting following Joe Soap's suggestion (mostly to see what he said about Hargreaves Lansdown I must admit - he doesn't pull his punches!) and noted the following:

- The fund is not overweight Consumer Staples as I had thought and indeed those companies have detracted from performance.

- There's decent exposure to technology.

- Much of the investment case is around demographic changes in the developing world / Asia, suggesting that there is plenty of growth (and hopefully outperformance) to come.

- Like many on this forum Smith is a total return investor and thinks investing for income (which would include bond-like stocks) is a mistake as growth comes from retained earnings.

- Certain elements I tend to focus on (like valuation and region split) are secondary considerations to the quality of the company.

I'm considering drip-feeding into Fundsmith and MNKS as my main investment plan for 2018 and beyond (with a bit of Tony Peterson -style range trading in value shares as opportunities present). Both of these funds have very high active share, so will be interesting to compare with the Vanguard funds over a significant period.
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King Lodos
Posted: 03 January 2018 18:34:57(UTC)
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Sara G;54907 wrote:
As I'm on leave and the weather was a bit rubbish yesterday I watched the 2017 Fundsmith Investor meeting following Joe Soap's suggestion (mostly to see what he said about Hargreaves Lansdown I must admit - he doesn't pull his punches!) and noted the following:

- The fund is not overweight Consumer Staples as I had thought and indeed those companies have detracted from performance.

- There's decent exposure to technology.

- Much of the investment case is around demographic changes in the developing world / Asia, suggesting that there is plenty of growth (and hopefully outperformance) to come.

- Like many on this forum Smith is a total return investor and thinks investing for income (which would include bond-like stocks) is a mistake as growth comes from retained earnings.

- Certain elements I tend to focus on (like valuation and region split) are secondary considerations to the quality of the company.

I'm considering drip-feeding into Fundsmith and MNKS as my main investment plan for 2018 and beyond (with a bit of Tony Peterson -style range trading in value shares as opportunities present). Both of these funds have very high active share, so will be interesting to compare with the Vanguard funds over a significant period.


Another good Terry Smith quote:

"Run your winners. Too often investors talk about “taking a profit”. If you have a profit on an investment it might be an indication that you own a share in a business which is worth holding on to. Conversely, we are all prone to run our losers, hoping they will get back to what we paid for them. Gardeners nurture flowers and pull up weeds, not the other way around."

This is very much my approach – trading with momentum .. Not sure he'd be too keen on TP range-trading!

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Micawber
Posted: 03 January 2018 18:50:45(UTC)
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Harbourvest PE is another laggard over a year. Reasons?
Sara G
Posted: 03 January 2018 19:15:35(UTC)
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Micawber;54925 wrote:
Harbourvest PE is another laggard over a year. Reasons?


Discount has widened from around 15% to 18% at a time when everything else has been soaring. I think there is still nervousness around the sector due to the really big discounts following the GFC, but this appears not to be justified according to this recent report which describes outperformance over 10 years.

http://www.edisoninvestm...gn=harbourvest_29112017

The latest factsheet also refers to the negative impact of currency movements.

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King Lodos
Posted: 03 January 2018 20:18:54(UTC)
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PE firms have also been sitting on huge cash piles, as general feeling's been there are very little value around – also talk of Trump's tax reforms hitting Buy-out firms (actually surprised there wasn't more of a reaction in discounts).

From Bloomberg 2016:
Private Equity Cash Piles Have Nowhere to Go as Prices Jump
Dry powder at $862 billion, the highest since at least 2008
Premiums paid so far this year are the largest in eight years

2017:
Private equity firms under pressure to spend $822bn cash pile
Investors want firms to start spending their money but well-priced investment opportunities are dwindling

A few weeks ago:
Private equity firms’ cash pile dilemma
Buyout companies must invest soon or they will find they can’t raise any more money, writes Matthew Goodman


I had a time-stop on Harbourvest (a regular Stop-loss set in a way to take you out if the sector stagnates), and it triggered quite by surprise .. The sector does tend to be very stop and start though
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Micawber
Posted: 03 January 2018 22:49:29(UTC)
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I did wonder about the FX effect. FPEO is up some 14% on the year, by contrast, with a discount around 4%, pound and euro doing OK, and a dividend to buttress it.
King Lodos
Posted: 04 January 2018 09:16:21(UTC)
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My screens largely took me out of USD exposure in 2017, but being 50-60% US Private Equity, that probably played a part .. Also PE just tends to go in spurts – partly as you don't get daily valuations, so there can be a long lag to see how things are going.

I think knowing a market turn is a possibility, I've gravitated towards more liquid assets and things with less leverage .. Micro-caps have been a great PE analog recently too
Micawber
Posted: 04 January 2018 09:25:39(UTC)
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I broadly kept my US exposure (though our HVPE component is really minimal - just one of the offspring holds it). The gain in the indices outweighed the relative decline in the dollar but as I don't see the fundamentals pressuring the dollar downwards I am sticking with it despite high equity valuations there. It still seems to be a healthy economy......

....your new Fundsmith Equity is over 60% USA......
King Lodos
Posted: 04 January 2018 10:03:05(UTC)
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You don't get 60% rolling returns getting your currency bets wrong.
Jim S
Posted: 04 January 2018 12:20:10(UTC)
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Micawber;54954 wrote:
I broadly kept my US exposure (though our HVPE component is really minimal - just one of the offspring holds it). The gain in the indices outweighed the relative decline in the dollar but as I don't see the fundamentals pressuring the dollar downwards I am sticking with it despite high equity valuations there. It still seems to be a healthy economy......

....your new Fundsmith Equity is over 60% USA......


Sorry this is off topic, but last night I followed Sarah G and Joe Soap by checking out the Fundsmith Investor meeting video. Its easy to find on google or the fundsmith website, I must say I was impressed.

The meeting is around 2 hours, and in case anyone is interested the amusing HL discussion is towards the end.

Something Terry Smith emphasisd in his Q&A was that while the fund seems very US-centric, the revenues are well spread globally. Eg. I think one big holding was Philip Morris, nominally US company but with no revenue in US.

I am tempted to invest in FEET after viewing the presentation, but I notice its gone up to a premium recently so will just put on watchlist for now.




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Captain Slugwash
Posted: 04 January 2018 13:21:09(UTC)
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Jim S;54966 wrote:
S
Something Terry Smith emphasised in his Q&A was that while the fund seems very US-centric, the revenues are well spread globally. Eg. I think one big holding was Philip Morris, nominally US company but with no revenue in US.


I am always banging the drum on this, and apologies to those who have heard it all before.
My portfolio is shown by various 'portfolio x-ray' tools as being massively N.America & UK heavy but in reality is anything but as I mainly choose boring old multinationals. I am cautious of any company earning more than 75% in any one continent unless it is a utility/pipeline/Reit etc.

I find CSI markets a useful tool for U.S. companies
http://csimarket.com/stocks/seg...p;image.y=7&image=go

P.Morris shown here, but put any ticker in you want.

With regards to FEET, I like the idea but not the fees.
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laang lee
Posted: 05 January 2018 08:07:03(UTC)
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I will watch the Terry Smith video later, but want to post here before, while we are on this off subject topic, and get too many new posts.
I posted about FEET last year, and found the responses very helpful, they possibly stopped me selling at a loss, but I never got around to posting to say "Look how it is now doing much better."
But this example of just one fund shows several points.
I often read how, if the reasons you bought the fund are still valid, then, hold on, and it should pick up.
A dip can be a buying opportunity.
But you need to be quick, because other buyers will get in there and push the price up.
However, in the past, I have held onto funds that have taken a long time to come back, and it does not cost much to sell and cut your losses. Buying back in, is the thing, just don,t do it too often. I will wait and see whether I've missed the chance to double up.

It seems to me that last year saw a lot of IT discounts narrow to a point where people now hold off buying. But also, those Trusts that specialize in buying Trusts at discount missed out on last years rises.
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