Single multi-asset funds offer investors a potential all-in-one solution. Typically made up of a mix of shares and bonds, they provide investors with an instant (and constantly) balanced portfolio that is broadly diversified and designed to give them the best chance of attaining their long-term financial goals.
Vanguard’s own multi-asset funds, led by our LifeStrategy range, took in a record amount of money from investors in 2020. This includes from people like me, as well as members of my family.
Having been launched ten years ago, our LifeStrategy range of funds in the UK have since seen their assets under management grow to more than £32 billion1.
But can a single multi-asset fund really tick all the boxes? Can such an apparently simple solution really cater to investors’ needs?
We believe they can but not all multi-asset funds are created equal. So it’s important to get a proper understanding of what a fund is made up of and how it is managed.
Finding the right fund
Picking an all-in-one fund is much like many other decisions in life. Whether it’s buying a house, choosing a nursery for your children or planning a holiday, it can be surprisingly difficult to find something that ticks all the boxes around quality and cost.
Finding the right fund is not all that different and it may in fact be a little easier.
In keeping with our four investment principles – goals, balance, costs and discipline – the first step is to check that a multi-asset fund really is aligned with your goals. Multi-asset funds can have varying objectives, so it really comes down to being clear about your ultimate financial aim.
In my case, I’m invested in the LifeStrategy 80% equity fund, as my goals have a fairly long time-horizon, meaning I can tolerate higher levels of risk.
I can do this with our range of LifeStrategy funds because they offer varying splits of share-to-bond ratios to cater for different risk tolerances, time horizons and financial goals.
Investors nearing retirement, for example, may be more likely to require a fund with a very low risk profile – with only 20% invested in shares and 80% in bonds, say. Or maybe they’ve got more time and are happy to take on extra risk in pursuit of higher returns with a portfolio that is 80% made up of shares.
Making sure it’s diversified
Within that overall allocation, it is important also to look for multi-asset funds that offer broad diversification – that is, a sufficiently wide range of investments that effectively spread your risks.
If we look more closely at the LifeStrategy® 60% Equity Fund as an example, we can see that it provides investors with exposure to almost 502 countries and more than 26,700 unique holdings, including company and government bonds as well as shares.
Now that’s what we call diversification!
Keep your costs low
That ties in nicely with our next investment principle, which is to think about costs. Financial markets are unpredictable. The future is unpredictable. But cost is one thing that investors can control.
Our research has shown that low-cost funds have a higher probability of outperforming costlier peers, spanning both active and index strategies3. If the cost is high you simply get to keep less of your returns.
A benefit of Vanguard’s mutual structure in the US, where it is the fund owners who own Vanguard4, is that Vanguard’s interests are aligned with those of our investors globally, which includes keeping our costs low. This is core to everything we do; our aim will always be to pass as much as possible back to our investors.
The last principle is a tricky one and often the hardest. Being disciplined about investing is something that even the most seasoned investors struggle with.
Part of that challenge is sticking with your asset allocation, which has been found to be the most important determinant of long-term investment success5. As time goes by, the original asset mix can drift because part of the portfolio will outperform.
For example, if shares outperform bonds, the share portion of the portfolio will gradually exceed the target allocation while the bond portfolio will diminish by the relative amount.
That’s why we advocate regular rebalancing, which is the process of actively readjusting the portfolio’s asset allocation to the intended mix. Some all-in-one multi-asset funds like our LifeStrategy funds, rebalance regularly using cash flows to minimise costs and maintain the desired asset allocation.
In addition to rebalancing thresholds, our funds employ a dynamic approach to rebalancing when markets are more volatile. For example, in March 2020 – when the Covid-19 pandemic was hitting markets – these rebalancing thresholds were moved slightly wider to avoid rebalancing in the wrong market direction.
The process is part of the evolution of LifeStrategy funds as we look to make the inner complexities more efficient. The alternative of a portfolio made up of different funds puts the onus on investors to manually rebalance portfolios.
Outwardly simple, inwardly complex
Investing in a single multi-asset fund is not necessarily basic. In the case of our LifeStrategy funds, their outward simplicity is intentional – we handle the inner complexities and difficult decisions on behalf of investors, which is part of their value as an all-in-one investment solution.
We believe that delivering value to investors isn’t just about cost, although cost is important. It’s also about providing high-quality investment solutions that help investors reach their financial goals.
1 Vanguard, 31 June 2021.
2 Plagge, Walker, Hon and Corlett-Roy, 2021. “The case for low-cost index-fund investing”. Vanguard.
3 47 countries, as of 30 June, 2021.
4 Vanguard Group, Inc. is owned by Vanguard’s US-domiciled funds and ETFs. Those funds in turn are owned by their investors. While VGI’s ownership structure can’t be replicated outside of the US (due to regulatory restrictions), we believe that this mutual structure aligns Vanguard’s interests with those of our investors globally.
5 Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, 1995. "Determinants of portfolio performance." Financial Analysts Journal 51(1):133–8. (Feature Articles, 1985–1994.)
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.
Investments in smaller companies may be more volatile than investments in well-established blue-chip companies.
The Vanguard LifeStrategy® Funds may invest in Exchange Traded Fund (ETF) shares.
ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid- offer spread which should be considered fully before investing.
Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.
The Funds may use derivatives in order to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets andresult in greater fluctuations of the Fund's net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or amarket index.For further information on risks please see the “Risk Factors” section of the prospectus on our website at https://global.vanguard.com.
If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described in this article, please contact your financial adviser.
This article is designed for use by, and is directed only at, persons resident in the UK.
The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this article is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of shares and /or units of, and the receipt of distribution from any investment.
The Authorised Corporate Director for Vanguard LifeStrategy Funds ICVC is Vanguard Investments UK, Limited. Vanguard Asset Management, Limited is a distributor of Vanguard LifeStrategy Funds ICVC.
For further information on the fund's investment policy, please refer to the Key Investor Information Document (“KIID”). The KIID and the Prospectus for this fund is available from Vanguard via our website https://www.vanguardinvestor.co.uk.
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