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Hargreaves questions Vanguard LifeStrategy performance

Discount broker claims low-cost D2C entry will not pose a threat

Mark Dampier
Hargreaves head of investment research Mark Dampier

Hargreaves Lansdown is encouraging investors to rethink their due diligence on the £5bn Vanguard LifeStrategy range, arguing its success may not last over future market cycles.

As the giant US fund manager launches its UK platform for direct clients this month, Hargreaves head of investment research Mark Dampier says investors should reconsider how well some of Vanguard’s “clever” passive strategies would do in tough periods.

Speaking to Money Marketing, Dampier says: “Vanguard have done well because they haven’t done anything.

“Their LifeStrategy range is a very good idea and very straight forward but they don’t make any decisions and, because they’re heavily weighted towards the US – a great spot to be in the past five years – that’s helped them…But most active funds have been
underweighting the US, if anything, because it is overpriced.

“So the real question is: is that going to go well in the next five years?”

Advisers back Vanguard D2C launch but point to flaws

He adds: “Some of Vanguard’s strategies have just started at the right time and whether that will continue, and whether people will have the conviction to stay with it when it is not working so well, even though the cost is cheap, I don’t know.”

Vanguard’s range was launched in 2011. The Vanguard LifeStrategy 60% Equity fund has returned 34.8 per cent over three years versus the 26.6 per cent of the IA Mixed Investment 40-85% Shares sector. It beat the equivalent BlackRock Consensus 70 fund which returned 29.7 per cent over the same period.

Hargreaves’ share price dropped more than 8 per cent on the day Vanguard announced its UK direct platform.

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Mark, it seems as if you have not carried out any detailed due diligence on Vanguard Lifestrategy but instead formed your opinion based on conjecture and hearsay.

    Considering your words influence thousands of investors it is my opinion that this is somewhat irresponsible.

    I’m not convinced your opinion is entirely impartial given that you run your own multi-manager funds that directly compete with Lifestrategy.

  2. “But most active funds have been
    underweighting the US, if anything, because it is overpriced”.

    Turns out most of them were wrong then!

  3. Now they no longer get kick backs from active funds I thought HL had given up on their policy of kick the passives, seems not.

    Vanguard launched LifeStrategy in the UK almost 6 years ago. As previously noted either active managers have been wrong and underweighted the US for the whole 6 years or they have only recently moved to that position to anticipate a correction but actually have missed even higher returns.

    Perhaps it is time for Mr Dampier to draw his pension, maybe a nice little SIPP with a nice cheap Vanguard fund in there will do.

    • I agree Andrew – I feel Mark Dampier is trying to recover the 8% drop and people in glass houses shouldn’t throw stones. I never comment adversely about any provider or investment fund manager and maybe Mark should adopt the same ethics? This is after being comfortably outperformed by a passive fund comparing it to the HL Multi Manager Balanced Managed fund…..

  4. Philip Castle 25th May 2017 at 7:37 am

    @HL -To quote Hector Sants….. “Be afraid, be very afraid”
    The sort of clients who choose HL are likely to be the same who will choose the Vanguard Lifestrategy Funds. Any who have Lifestrategy via HL, will now be able to get them cheaper directly from HL. They can already get them cheaper than HL on a lot of advised platforms too.

  5. “So the real question is: is that going to go well in the next five years?”

    Blowed if I know. Would it be okay if I answered that in five years time, Mark?

  6. Is that response the best HL can come up with? Around 52% of investable world market cap is in the USA.

    The reason Vanguard do so well is strategic asset allocation backed up with very low costs. Why set sail then tinker with the sails before you’ve even left harbour? All that guessing where the market is going and trading costs investors money.

    Vanguard are a mutual (no greedy shareholders to pay), have virtually zero tracking error and, unusually for the fund industry, refund 100% of their security lending profit to the fund holder (which often has the effect of fully negating the headline management fee. It’s hard to argue against ‘free’.

    You wonder what part of this HL don’t get? They should be scared.

    “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
    Upton Sinclair, (1935)

    “Unhappily, the basic assumption that most institutional investors can outperform the market is not true. The institutions are the market. They cannot, as a group, outperform themselves. In fact, given the cost of active management–fees, commissions, and so forth–most large institutional investors will, over the long term, under-perform the overall market.”
    Charles Ellis, Investment Policy

    “Most stock funds fail to beat the market. Yet a lot of folks are still mighty confident they can pick the winners. A tad delusional? Could be.”
    Jonathan Clements, Columnist, Wall Street Journal

    Eugene “Fama is an egghead” – Bobby “Axe” Axelrod, from the hit tv show Billions

  7. Laurence Samuels 25th May 2017 at 5:16 pm

    This article really made me chuckle. Looks like HL are shaking in their boots.

    Vanguard is going to shake up the financial industry now they are allowing direct investments and their account fees are only 0.15% per year.

    Of course no mention of the excessive managed fees companies such as Blackrock charge and how damaging these fees are to your portfolio over your investing lifetime.

    It’s the same old argument active fund managers have been barking for decades. The fact is trackers will most likely always beat managed funds over the long run.

  8. Whilst I agree with a lot of the comments already made, Mark does have a point. It would be hard to find an index that hasnt gone up in the past 5-6 years and so a rethink or diversification could be in order.

    Dont get me wrong I love what Vanguard do, but we all recognise that interest rates can only realistically go one way from here meaning its static asset allocation to bonds will eventually experience a fall in value.

    You also need to think about the high yield space, Vanguard will be exposing itself to high yield indiscriminantly through the use of a index, which I liken to purchasing a bowl of half gone off fruit, you just wouldnt do it regardless of whether it is cheaper to do so.

    I am not saying that I agree with Mark, I am saying that I do think that we need to look again as we enter the next market cycle.

  9. Morningstar (an independent ratings agency) has now given the Lifestrategy range a Gold rating.

    Meanwhile, on planet Hargreaves, you can now invest in Bitcoin via an Exchange Traded product.

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