You may be investing into the Vanguard Lifestrategy 100 Equity Fund and considering a switch to something like the FTSE Global All Cap Index Fund. Alternatively, you might be thinking about a switch to the Vanguard Lifestrategy 100% fund. There are some critical distinguishing features that you need to know before switching. My hope is that this Vanguard Lifestrategy 100 review will help you to understand the pros and cons.
You may also want to know:
- What is the Vanguard LifeStrategy 100% equity fund accumulation?
- Is Vanguard 100 LifeStrategy a good investment?
- Does Vanguard LifeStrategy 100 pay dividends?
- Are Vanguard LifeStrategy funds any good?
You may also want to know how does the Vanguard LifeStategy 100 compare to other Global Funds. For us to answer these critical question you need to understand the performance of the Vanguard LS100. In which case we also need to understand the key differences between the LS100 and other global funds. For example, how to the Vanguard Lifestrategy 100% Equity Fund and FTSE Global All Cap compare. In short, these are some major historical differences in performance. This leads to the question of switching to or from the L100 fund or just leaving everything as it is?
Disclaimer: This is not financial advice and you are responsible for your own investment decisions. When Investing capital is at risk.
Vanguard Life Strategy 100% Equity Fund Vs FTSE Global All Cap Index Fund
Let’s take a look at the performance of the Vanguard Life Strategy 100% Equity Fund Vs FTSE Global All Cap Index Fund. You can see that in the past 5 years the LS100 has returned +68.48% vs the Vanguard Global FTSE All Cap’s 75.11%. On a £10,000 principle investment that’s a £663 difference.
To understand this difference in performance we can review the Vanguard Life Strategy 100% Equity Fund’s asset allocation. This can help us identify two factors. First, why it’s performance differs historically. Secondly, how it might perform in the future.
One of the core differences between the Vanguard Life Strategy 100% Equity Fund is the home-bias towards UK equities. The LS100 invests into three sub-funds which track UK stocks. These are the
- Vanguard FTSE U.K. All Share Index Unit Trust GBP Acc.
- Vanguard FTSE 100 UCITS ETF (GBP) Accumulating.
- Vanguard FTSE 250 UCITS ETF (GBP) Accumulating.
In total the LS100 invests 22.3% into UK Market. By contrast, the Vanguard FTSE Global All Cap Index Fund GBP Acc (VAFTA) invests just 3.89% into UK equities. That 18.41% more UK equities in the LS100 fund. In fact, many funds are underweight in UK stocks due to an underperformance.
By contrast, the Vanguard FTSE Global All Cap Index Fund has a 61.17% allocation of US Equities vs the LS100 allocation of 50.85%. That’s just over a 10% difference. Which means that this additional investment into UK equities doesn’t just come by subtracting it from the US.
It must take an allocation away from other key global markets including Canada (-2.5%), Asia – Emerging Markets (-1.3%), The Eurozone (-1%) and Japan (-1%). In short, it is less diverse globally in favour of UK equities.
Compared the LS100 the FTSE Global All Cap higher allocation in small-cap and large-cap stocks of between 5-6%. This might not seem like much but it has the potential to make a profound impact on returns. As you will see from my comparison of FTSE Global All Cap Index Fund (VAFTA) vs Vanguard FTSE All World Index Fund (VWRL)?
(Portfolios as of 31/10/2022)
Vanguard LifeStrategy 100% Equity or VUSA (S&P 500 UCITS ETF)
We can also review the Vanguard LifeStrategy 100% Equity to see how it performs against a widely used benchmark index for the US economy. The S&P 500 or if you want to look at a specific fund that tracks this index, then the VUSA. One of the reason some funds have historically performed much better than others (e.g. the Vanguard Lifestrategy 100 vs the FTSE Global All Cap) is due to allocation of the investment into US stocks.
You will be hard-pressed to fund a better performing index over the last 20 years. Especially when you consider the bull run into the late 2010s. This was one of the longest and strongest bull markets on record. Putting your money into the FTSE 100 at the low point of the 2009 bear market would have seen it double over the past 13 years; but the same amount in the S&P 500 would have grown five-fold. This is also one of the reasons why the Fidelity World Index Fund Beat The Vanguard FTSE All Cap.
The 2020 Covid Crash & 2022 Bear Market
Even following the fasted ever Covid-19 crash of March 2020 where stocks fell by 30%, the index rebounded to a whopping 80% returns. This was driven by many of the mega-cap technology companies that surged in value. At one point 20% of the S&P500 index was accounted for by just 5 technology companies.
Crashing valuations of these technology firms at the start of 2022 is perhaps a signal of things to come. On the other hand a reset of these valuations and the ever-evolving social and economic landscape mean that these companies could be well-positioned for the next 20 years.
Where you sit on this side of the argument may direct you to a home-bias of UK equities which are much more centred around financial services or towards US equities. More US equities isn’t always better and there are 3 Reasons Why The FTSE Global All Cap Index Is Better Than S&P 500.
Should You Switch Away From The Lifestrategy 100 Equity Fund Accumulation?
Having reviewed the Vangurad Lifestrategy 100 equity fund vs the FTSE Global All Cap and The VUSA (S&P), you may feel like you should switch to one of the later funds. This is because the historical returns of the L100 clearly lag behind other global funds. Whilst the Vangurard Lifestrategy 100’s performance isn’t bad in it’s own right, it’s just not as strong as the latter funds.
One of the major reasons for this appears to be the investment into UK stocks. As you can see from the below chart the FTSE 100 has barely moved for the last 10 years. Although, you might be surprised to here that after reinvesting dividends the FTSE 100 would have returned 122%. So it’s not all bad.
The problem with chasing gains based on historical information is that they do not take into account the current economic conditions. It may be the case that UK stocks now present a much more realistic valuation. The IMF have indicated that US stocks could fall a further 20%. According to Société Générale, “history suggests the S&P should bottom out over the next six months at about 34% to 40% below its peak reached at the start of 2022”.
The UK Stock Market Looks More Compelling: Could It Be Set For A Breakthrough Year?
The FTSE 100 and FTSE 250 valuations have already felt much of this pain. Tom Stevenson of Fidelity International states “the valuation of the FTSE 250 index has only been lower than it is today in one year out of every ten during the past three decades.”. The same mid-cap index stands at a 30% or even 40% valuation discount to the MSCI World index as you can see from the chart below. Funds such as Vanguard 100 Lifestrategy are posited to better capture these discounted stocks.
The Fidelity article continues to state that “this underperformance means you now have to pay just nine times expected earnings for the average share in the FTSE 100 and 11 in the FTSE 250. That compares with 17 times for the average US share.” This also means that UK equities are potentially very good value for money right now.
This also means the UK is generating a dividend of 4.5%. This is much higher compared to the rest of the world. This means that investing in UK stocks will return a healthy dividend to reinvest or take as income. Therefore, the Vanguard 100 Lifestrategy would return and even re-invest these dividends.
Conclusion: Should You Switch To The Lifestrategy 100 Equity Fund Accumulation?
When I first sat down to write this article, I must admit I was biased to the FTSE Global All Cap. You could even say I had an anti-home bias with a reluctance to invest in stocks outside the UK. Funds which have a much lower weighting of UK equities have always appealed to me more. That’s because of better growth prospects and so the Vanguard 100 Lifestrategy looks very appealing.
At the end of the article, I find myself asking if I should switch to the LifeStrategy 100. Whilst UK shares don’t look appealing given their historical performance vs the S&P 500, they now look seriously undervalued. As the experts have highlighted this means the Lifestrategy 100 Fund looks set for a spectacular breakthrough. By contrast, US stocks seem overvalued and the Vanguard 100 Lifestrategy
The LS100 fund now seems to be quite a strategic benefit. The question we have to ask ourselves, is do you agree with the experts that UK equities are undervalued. By contrast, do you hedge your bets in favour or a booming US economy and a UK economy struggling with a long-term economic battle. Hopefully this Vanguard Lifestrategy 100 review has helped you understand the pros and cons of this fund.
What Index Fund Is Best For You?
It can be challenging to decide the best index funds to invest in. Investing has been made purposefully complicated so that you feel you have to outsource your investing to financial advisors and expensive fund managers. This combined with the fear of losing money in the stock market drives many to more expensive funds. The Vanguard 100 lifestrategy fund may not be for everyone.
To help with this I’ve handpicked 8 index funds. You’ll learn about what each fund does, it’s costs and where you can find it. So, get access to the 8 funds that meet my quality and cost criteria. If you want to invest into index funds then check out the 8 index funds that make my personal shortlist.
There are also a number of balanced investment funds and growth funds out there to suit you needs (Get my 5 Balanced funds). This means you can structure your investment portfolio to fit your risk tolerance and investment time-horizon. This means there are also a number of Defensive funds you can use to protect your wealth. Investing is a very personal journey, so make sure you get the right fund for you.
