Vanguard is without a doubt one of the leading investment platforms. The question is which Vanguard funds are the best? Even with Vanguard’s simple product offering there are a number of funds to choose from. This makes it challenging to know which vanguard fund to invest in from the UK. What are the best vanguard index funds in the UK?

Whilst Vanguard doesn’t have the complex multi-asset funds that Fidelity offers. It still have a multitude of index funds on offer. There are 72 Passive Index Funds to choose from on the Vanguard UK website. Just 11 Active funds such as their SustainableLife Funds are on offer. There are also the Lifestrategy and Target Retirement Funds to consider.

Your investment strategy may vary depending on where you are on your investment journey. If you are closer for retirement you may actually be searching for the best Vanguard Bond funds or the best global income funds in the UK. This article focuses on Vanguard Equity Index Funds. Which means this article will cover Vanguard funds that are dominant in shares rather than Bonds. This includes the below.

  • S&P 500 UCITS ETF (VUSA)

  • FTSE North America UCITS ETF (VNRT) | ESG North America All Cap UCITS ETF

  • Vanguard FTSE All-World UCITS ETF (VWRL),

  • Vanguard FTSE Global All Cap Index Fund | ESG Global All Cap UCITS ETF

  • FTSE Developed World UCITS ETF (VEVE) | ESG Developed World All Cap Equity Index Fund (UK)

  • FTSE Developed Europe UCITS ETF (VEUR) | ESG Developed Europe All Cap

  • FTSE Emerging Markets ETF (VFEM) | ESG Emerging Markets All Cap Equity Index Fund

  • ESG Developed Asia Pacific All Cap UCITS ETF (V3PM)

  • Vanguard LifeStrategy 100% Equity Fund (LS100).

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Disclaimer: This is not financial advice and you are responsible for your own investment decisions. When Investing capital is at risk.

How To Know Which Vanguard Funds Are The Best?

There are a number of important similarities and differences between these funds. That includes the performance between the funds. As we know past performance does not guarantee future results. Therefore, a more important distinction between the funds, is if they align with your investing philosophy.

All of the funds listed above have a low cost and low tracking error. They also use the same structure and replication method. Where they differ is perhaps more important. These Vanguard Index funds may:

  • Mirror different market benchmarks.

  • Be impacted by currency exposure.

  • Vary in share class and asset allocation.

    1. Automatic reinvesting of dividends (acc) vs distributing (dist) vs Income funds.

    2. There is also the Environment, Social, Governance (ESG) wrapper to consider.

  • Securities Lending: funds may be exposure to securities lending and derivatives.

  • Ongoing Charges (OCF), minimum payments and minimum monthly direct debits.

This highlights a second problem with knowing which Vanguard Funds are the best. Which is that all these different funds are exposed to different markets. They are targeted at different geographical regions and this can influence the type of stocks that you will be buying.

You will have seen many people refer to the S&P 500 as the core index to track. As a result, you might already be on a path to finding Vanguard funds that track the S&P 500 index.

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US Focused EFT: Vanguard S&P 500 ETF Fund Index

The S&P 500 is often touted as the only equity exposure an investor needs. This view is advocated by the likes of Warren Buffett and John Bogle. US stocks have performed astronomically well in the past decade or two.

This is will you will tend to see funds high in US market stocks rated 5 star by the likes of Morningstar. As a result, Vanguard’s US focused funds such as the Vanguard Total Market Index, or the S&P 500 ETF Fund (VUSA) usually rank at the top of recommended fund lists. For example, you can see the VUSA is in Fidelity’s select top 50. As is the Vanguard FTSE All-World UCITS ETF (VWRL)

The VUSA has seen growth of +333% in the last 10 years and 88% over the last 5 years. Compare this to the likes of the FTSE 100, which has returned 130% in the last 5 years. The ongoing charge (OCF) for an S&P 500 fund is < 0.1%. This means that the investor pockets most of the profit.

Best vanguard index funds uk: Vanguard SP 500 Performance vs iShares FTSE 100
Vanguard SP 500 Performance vs iShares FTSE 100

The fact that funds dominant in US stocks have performed exceedingly well, begs the question, is this all about to change and is this benefit transforming into a risk. Investing in a single market exposes the investor to the sole fortunes of a single country. This can be especially bad when bubbles form, like what happened to the Japanese Nikkei in the late 90s. This is also why I wrote an article comparing the S&P 500 vs the Global FTSE ALL Cap Index.

By diversifying globally you can diversify by different sectors. For example, the FTSE 100 is dominant in financial services stocks (15.47%) but only has <1% technology stocks. By contract, the S&P 500 index has become very technology dominant (23.80%).

Best vanguard index funds uk review: Vanguard Funds 500 Index: Asset Allocation SP 500 vs FTSE 100
Asset Allocation SP 500 vs FTSE 100

Global Markets: Which Is The Best Vanguard Global Equity Index Fund?

The FTSE Developed World UCITS ETF (VEVE) also presents a strong option without investing in highly volatile Emerging markets. It includes the likes of the United States, Japan, Canada, UK and other countries in Europe such as France. Alternatively, if you want to double down on the developing economies of the world you have the FTSE Emerging Markets ETF (VFEM). This includes the likes of China, India, Taiwan and Brazil.

The three funds listed above provide the most diversification across of markets. That’s because they capture stocks across developed and emerging markets and market caps. When trying to which Vanguard Index Fund is the best, there are three main global index tracker funds to review:

  • The Vanguard FTSE All-World UCITS ETF (VWRL)

  • The Vanguard FTSE Global All Cap Index Fund

  • The Vanguard LifeStrategy 100% Equity Fund

You can read my full comparison of The Vanguard FTSE All-World UCITS ETF (VWRL) vs The Vanguard FTSE Global All Cap Index Fund.

Best Performing Vanguard Equity ETFs: Vanguard Lifestrategy Fund Vs Vanguard FTSE All-Cap & Vanguard FTSE All-World Index Funds

This brings me onto an interesting Vanguard fund comparison. Vanguards Lifestrategy 100% fund, whilst being a global equity fund differs from regular global index funds. That’s because it has around 20% of it’s allocation in UK stocks. This is despite the UK having only a 5% weighting in the MSCI ACWI – Global Equity benchmark. This may be for strategy benefit or to take advantage of home bias. This is when investors show a preference for domestic stocks.

Which vanguard fund to invest in uk: Asset Allocation Vanguard ALL World vs All Cap vs Lifestrategy
Asset Allocation Vanguard ALL World vs All Cap vs Lifestrategy

The Lifestrategy 100 Equity Fund is 100% equities. It’s therefore comparable to the Vanguard FTSE Global All Cap Index Fund GBP acc or the Vanguard FTSE All World UCITS ETF. I’d say the Lifestrategy 100 is in the middle of the two funds in terms of it’s allocation to stock style. At the time of writing each have slightly different stock style allocations.

  • Vanguard LifeStrategy 100% Equity Fund: 17% mid-caps and 3% small-caps.

  • Vanguard FTSE All-World UCITS ETF (VWRL): 17% in mid-caps but 0% small-caps.

  • Vanguard FTSE Global All Cap Index Fund: 20% mid-caps and 6% small-caps.

Whilst the Lifestrategy has the same weighting towards mid-caps as the All-World it maintains a small allocation of small-caps. However, not as high a weighting as the All Cap does.

How Do Vanguard’s Lifestrategy Funds Compare The FTSE Global All-Cap or All-World Index Funds?

Vanguards Lifestrategy funds are their funds of funds. In the sense that is investors into other Vanguard funds which track indices. In this sense it is an active fund as the fund manager can allocate weight to different funds. There are also a number of Vanguard Lifestrategy funds, which range from a combination of 20% shares and 80% bonds up to 100% shares. You can also invest in the:

  • 20% Equity (80% Bonds)

  • 40% Equity (60% Bonds)

  • 60% Equity (40% Bonds)

  • 80% Equity (20% Bonds)

  • 100% Equity

This means that the Lifestrategy funds offer more sensitivity to your risk temperament and investment time-frame. Vanguards umbrella of Lifestrategy funds therefore offer more flexibility than the rest of their index based funds.

The higher the equity share, the higher the risk factor. LS20 offers a low risk option of 3/10 with a mark of ‘cautious’, while the LS100 offers an ‘aggressive’ risk option of 5/10. The LifeStrategy 60% Equity fund is referred to as “Balanced portfolio” with 60% equity and 40% bonds.

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What About Vanguards Target Retirement Funds

Vanguard has branched out on this philosophy of building simple index funds for investors who do not want 100% equities. Vanguard also offers a Target Retirement fund. A Target Retirement fund is a ready-made portfolio that makes investing for retirement simple. You simply choose a fund based on when you plan to retire and as you get closer to retirement, they switch you out of higher-risk, higher-reward investments and into more stable ones.

Each Target Retirement fund aims to balance taking the risks needed to grow your wealth, while also taking steps to preserve your retirement savings. You can see the structure of the retirement funds are similar to the Lifestrategy funds. The difference being that there are more increments and the change is made automatically.

Which vanguard funds are the best: Vanguard Target Retirement Funds
Vanguard Target Retirement Funds

Conclusion: Which Vanguard Funds Are The Best?

It can be tricky to know which vanguard fund to invest in from the UK. Hopefully this article has narrowed it down and outlined the key differences between them. In short, Vanguard’s funds as S&P 500 ETF Fund Index or the FTSE Global All Cap buys you access to between 500 and 7000 stocks. There are two further key factors that are key for investors to consider when deciding which equity fund is right for you.

  1. Cost difference between selecting an fund benchmarking against a single index (e.g. VUSA) vs one that captures multiple indices or is a fund of funds (e.g. Life strategy 100). For example, the ongoing cost for the VUSA is 0.07%. The VWRL is 0.22% and the Lifestrategy is 0.22%.

  2. Investing Philosophy and asset diversification. As an investor are you willing to make a bet on one economies performance vs the global market.

Although, as you may have noted all the global funds are currently weighted to an allocation over 50% US stocks. Regardless of this, when taking a passive index based approach to investing, your fund will attempt to:

  • Track the performance of the Index by investing in all constituent securities of the Index in the same proportion as the Index. Where not practicable to fully replicate, the Fund will use a sampling process.

  • Remain fully invested except in extraordinary market, political or similar conditions.

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Challenging Times Ahead For Equity Index Funds

Remaining invested in extraordinary times is important. Investors that dip in and out of the market at difficult times can cut their returns in half. Given how highly the U.S market peaked in 2021-2022 it’s challenging to predict it’s future trajectory. Stocks are highly unpredictable and volatile right now and tech stocks just got crushed in September 2022 market selloff.

The six largest U.S. tech companies lost more than $500 billion after an unexpectedly high August inflation report sent tech stocks tumbling. The Nasdaq Composite sank 5.16% to end the day at 11,633.5, steeper than any day since June 2020. With stocks such as Nvidia loosing $34.21 billion and was down 9.47%, its steepest drop since March 2020.

The S&P 500 itself is down 20% since the start of 2022. It may continue to fall by 20-30% or bounce back now. Being invested in an index means that throughout these turbulent economic conditions you will be able to dollar-cost-average through the downturns.

< Explore: How Long Will The Bear Market Last? What You Need To Know About Bear Markets >

Vanguard Index Funds Aren’t Your Only Option

Vanguard’s Index funds replicate the holdings of an underlying index. When looking at the performance of index funds, you are really just looking at the performance of the underlying index. The key differences between Index tracker funds on different platforms will come down to management fees. Vanguard has some of the cheapest fees of any investment institution.

However, there are also a number of multi-asset and balanced funds to consider outside of Vanguard. Whilst Vanguard is one of the obvious leaders they are not the only option, especially when it comes to more complex fund options. Whilst we have referred to the Lifestrategy funds, there are 5 balanced funds that make my personal shortlist.

You may not want a completely passive approach to investing. There are funds that offer a 70% index-based strategy with some discretionary active management to take advantage of undervalued markets. As I’ve mentioned the Vanguard FTSE Global All Cap is one of the most highly recommended funds on investor forums such as r/FIREUK. However, there is also #1 fund that actually beat the Vanguard FTSE All Cap.

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Unsurpassed ETFs: Which Vanguard Funds Are The Best
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Unsurpassed ETFs: Which Vanguard Funds Are The Best
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Vanguard is without a doubt one of the leading investment platforms. The question is which Vanguard funds are the best? Even with Vanguard’s simple product offering there are a number of funds to choose from. This makes it challenging to know which vanguard fund to invest in from the UK.
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