Tracking the index has pushed the performance of the Vanguard Life Strategy 40 per cent Equity fund into the top ranks of its sector.
According to FE figures, the fund was hanging just below the IA Mixed Investment 20-60 per cent average until the Autumn of 2014 when the fund began outpacing its peers.
Over three years, the £918m fund has returned a healthy 15.6 per cent, against the sector average of 10.1 per cent, and is now ranked 15th.
The fund management team has a keen eye for developed markets, with a third exposed to the US, another third invested in the UK, and the rest of the allocation spanning across Europe, Japan and Canada.
The fund holds a wide range of Vanguard trackers – 17 in total – which tap into both equity and fixed-interest sectors, and with a total of 35 per cent invested in shares, the fund is short of its 60 per cent equity limit.
Vanguard’s FTSE Developed World ex-UK Equity Index Fund is the top holding at 19.5 per cent, and exposure to the Vanguard Global Bond Index Fund comprises an additional fifth of the portfolio.
The fund has an annual charge of 0.24 per cent and the minimum investment is £100 through a nominee account.
By comparison, the Scottish Widows HIFML Diversified Return Fund, however, has not seen such significant growth, managing a modest 1.4 per cent return over three years.
The £39.5m fund is relatively expensive, with an annual charge of 1.5 per cent, and has continually underperformed its mixed investment 20-60 peer group over three years, FE figures revealed.
More than a quarter is invested in hedge funds, half is exposed to global fixed interest and 14 per cent is in international equities.
The remaining 13 per cent is invested in commodity, energy and money markets.
Ranked 110th in the sector, the fund’s top holding is Insight Global Funds Libor Plus at 5.1 per cent, while the US 10yr Note Future and iShares JP Morgan EM Bond come second and third at 5 per cent and 4.3 per cent respectively.
The fund’s minimal initial investment is £5,000.
| Vanguard Life Strategy 40 per cent Equity | Scottish Widows HIFML Diversified Return |
| 1. Vanguard FTSE Developed World ex-UK Equity Index 19.5% | 1. Insight Global Funds Libor Plus 5.1% |
| 2. Vanguard Global Bond Index 19% | 2. US 10yr Note Future 5% |
| 3. Vanguard FTSE UK All Share Index Unit Trust 10.2% | 3. iShares JP Morgan Emerging Mrkt Bond 4.3% |
| 4. Vanguard UK Gov’t Bond Index Fund 9.4% | 4. Nasdaq 100 E-mini 4% |
| 5. Vanguard UK Investment Grade Bond Index 5.5% | 5. iShares Markit Iboxx 3.6% |
ADVISER VIEW:
Scott Gallacher, IFA at Leicestershire-based Rowley Turton, said: “Whereas most funds are actively managed, the Vanguard Group established the world’s first index mutual fund for individual investors in 1976, and has been a leader in low-cost index investing ever since.
“Despite being very cheap, the fund’s performance is very admirable and compares very favourably with alternative actively managed funds, and we have used it as a core holding for more cautious clients.
“The Scottish Widows fund aims to deliver positive returns on an annual basis, with the prospect of long-term capital growth commensurate with returns from equities but with a lower volatility.
“The fund is relatively expensive, and while it is very actively managed (its asset allocation over the past few years has moved around significantly) this active management has arguably destroyed rather than added value to the investors.
“Over the past 18 months the fund has seen a 7.4 per cent underperformance against the sector average, which may explain why the fund seems to be haemorrhaging money, with the fund size falling from £55m in April 2013 to just under £32m today.
“I’m relieved we have never used this fund, and given the figures, I’m struggling to see why anyone would at the moment.”
katherine.denham@ft.com