Why is Vanguard LifeStrategy so popular and is it a top performer?

it gets most of its exposure to shares and bonds indirectly by investing more than 90% in other Vanguard passive funds which track an index.

One of the most popular funds among UK investors is Vanguard’s LifeStrategy, a collection of so-called ‘one-decision’ funds which investors can tailor to their own risk attitude and investment goals. Fans of the product say it is ‘the only fund you’ll ever need’, so just why are people drawn to it?

Each LifeStrategy fund has exposure to a different mix of between 6,000 and 20,000 shares and bonds, which in theory reduces overall risk as shares typically generate a higher return but carry a higher risk and bonds typically deliver lower returns with a lower risk.

Vanguard LifeStrategy 80% Equity Fund

(B4PQW15) is a mix of 80% shares and 20% bonds and is aimed at those investing over a long timehorizon with a reasonable appetite for risk. It has a low ongoing charge of 0.22% which is highly competitive.

Part of the reason for the low charge is that LifeStrategy is a fund of funds – in other words

With total assets of £8.6 billion, the fund is around 19% invested in the Vanguard FTSE UK All Share Unit Trust, another 19% in the Vanguard FTSE Developed World ex-US Equity Index Fund and 19% in the Vanguard US Equity Index Fund.

Within the equity portion of the fund there is also exposure to Continental Europe and emerging markets, while in the bond portion there are holdings in UK government bonds, including indexlinked securities, and global bonds, all owned indirectly through index funds.

Historically, the performance of stocks and bonds has been uncorrelated, which means when one is up the other is down, so by combining the two the aim is to get a smoothed return with lower risk than just owning stocks.

The Vanguard 80% fund has beaten its sector average performance on a total return basis (with dividends reinvested) over the past one, three and five years, including during the pandemic-induced market turmoil.

However, it’s not the only fund of its kind, with 217 products in the Investment Association’s Mixed Investment 40%-85% Shares sector. Neither is it the top performer.

For example, Orbis Global Balanced Standard (BJ02KY2) and VT AJ Bell Moderately Adventurous (BYW8VL7) both outperformed the Vanguard fund on a three-year basis, while Royal London Sustainable World Trust (B882H24) has beaten it over three, five and 10 years, according to FE Fundinfo.

While it’s impossible to say if these funds will beat Vanguard’s product in the future, it does underline the message that popular doesn’t always mean best.

By Ian Conway Companies Editor