Comparison Vanguards Life strategy (VLS) vs S&P 500 your opinion please!

It seems to me Vanguards Life strategy (VLS is so popular here in the UK. I try to understand the reason for this!!!

Currency: You get it both funds in the UK priced on the same currency on many platforms e.g., GBP. So, transferring between the two how often you want to will cost you nothing in term of currency exchange fee.

Investment Charges: VLS are more expensive
Life Strategy 100% Equity Fund – Accumulation, OCF 0.22%
S&P 500 UCITS ETF Distributing (VUSA), OCF:0.07%

Performance wise:
Since the last five years (or even more) S&P have outperformed VLS (I attach the graph for comparison). I believe this is due to Weighting on Mega caps and high growth technologies stocks on S&P 500.

VLS100% equity is a more secure as it is more geographically diversified than S&P 500.
But arguably many companies on S&P 500 is actually also global companies as they operate in many countries and their revenues come from many countries around the world.

Imo five years, (or might be ten years?) is enough to conclude which one is performing better. Of course, bear in mind that the past performance is not a good indicator for future performance.

if you want to switch from one fund to another, you will have to close your position and open a new one and/or add it to the existing fund fund, but as I understand it, there is no fees to switch fund within the Vanguards Investor Platform (?)

I have not investigated it yet, but I believe there is a spread between buy/sell when you switch from one fund to another.

Is the spread being high enough making it not worthy to switch from one fund to another, say 2-3 times a year ??

If you could add any comment and/or opinion that I might have missed, it will be very much appreciated.

You need to consider that the Lifestrategy fund is a global fund - its meant to be ‘cheap’ and achieve a global average weighted return.

The S&P you have picked, is heavily weighted to the US, so in the same timeframe, it could have over performed or under performed. You are simply comparing a recent timeframe, where the US has typically outperformed the global markets on average.

The Lifestrategy is also more expensive because it is more diversified in global markets - emerging markets typically have a higher spread, so the argument I think that is popular on MSE and others, is that it is more diverse than picking one single market fund.

2 Likes

Some more answers :shushing_face:

I’d rather buy the global all-cap fund. I’m not a fan of the life strategy funds because they overweight the UK to about 20%. I think I’m right in saying they don’t include small caps as well.

2 Likes

Here is their portfolio data.

They do have a small cap e.g. FTSE250 as well but the allocation is just 1%. Not to mention emerging market which are mixed between large/Medium/small caps.

FTSE250 is performing really well recently due economic reopening. I am seriouly considering moving my VLS100 equity fund split to split between FTSE250 and S&P 500.

1 Like

A wildcard option could be the Global Equity Fund, which is part managed by Baillie Gifford. It’s active, charges 0.48% and has a much more concentrated portfolio of about 200 stocks.

2 Likes

It is interesting to see this staticical data on how the fund managers managing funds are performing in the last eight years against the market (S&P 500)

I start thinking what is the point of paying them if you could do better and cheaper by doing almost nothing such as throwng your money into S&P500 and forget it. OCF of S&P 500 is 0.07%. The exception is you are buying actively managed fund actively trading high growth stocks with consistent records of beating the market.

People might argue, it is less risky. But look at the history of market crashes such as the recent pandemic black swan event in 2020, they still did not do a better job than S&P 500.

Source:

2 Likes

An active approach is sometimes preferred for emerging markets and small-caps because relative market inefficiencies supposedly make it easier for managers to outperform.

I hold a couple active OEICs: BG LTGG and Fundsmith: as well as a passive fund in the hope of capturing the best of both approaches – lower overall costs and the opportunity to outperform.

2 Likes

First Sentier are also known as ‘specialists’ in the emerging market sector, possibly more so. It all depends on what you are looking for.

Totally agree, 40% of my allocation is to VUSA.