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Moving from active to Vanguard Passive?

Index tracking funds and ETFs
GeoffF100
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Re: Moving from active to Vanguard Passive?

#276259

Postby GeoffF100 » January 9th, 2020, 8:03 pm

MartynC27 wrote:The Vanguard Global Bond (VAGP) contains a range of over 4200 Global Government and Investment grade Bonds, average quality AA- , Average Duration 7.2 years and is probably the closest ETF you can hold which is similar to the Vanguard Global Bond Fund.

Yes, VAGP includes a lot of shares, but that does not mean it is well diversified. It is less well diversified than a whole market world tracker, because it omits all the shares that do not have high yields. Indeed, it is likely to omit whole sectors, and even be mostly restricted to a few sectors. That is also true of value trackers and of growth trackers.

I am using iWeb, so platform fees. I have a large holding of Vanguard Global Bond fund, and I am paying 0.05% p.a. more than I would with the ETF. Nonetheless, there would be switching costs, and Vanguard's charges may change.

Another point worth mentioning with regard to geographical allocation is UK bias. Vanguard's committee has decided to invest 25% of the LifeStrategy equity allocation in the UK market. That is also the average allocation of UK institutional investors. The main arguments for a UK bias are reduced volatility and more favourable tax treatment. A UK bias also waters down the US market allocation, which many consider to be overweight, but a passive investor is not going to pay much attention to that.

Hariseldon58
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Re: Moving from active to Vanguard Passive?

#276491

Postby Hariseldon58 » January 10th, 2020, 5:27 pm

I went the veve and vfem in a 9:1 ratio plus a chunk of VHYL ( it includes Emerging markets ) as a value play / income (if markets fall heavily, the income is encouraging !)

On the bond front, I left out the global fund as I don’t want the negative yield/zero yield and so have stuck with US bonds , government and corporate plus some VEMT Emerging gov’t plus NS&I income bonds instead of gilts.

Throw in a dividend reinvestment strategy and I will leave it alone for the next three months as I am travelling!

GeoffF100
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Re: Moving from active to Vanguard Passive?

#276531

Postby GeoffF100 » January 10th, 2020, 7:31 pm

Hariseldon58 wrote:On the bond front, I left out the global fund as I don’t want the negative yield/zero yield and so have stuck with US bonds , government and corporate plus some VEMT Emerging gov’t plus NS&I income bonds instead of gilts.

The effective Yield To Maturity (YTM) for the Vanguard Global Bond Fund is 1.4%:

https://www.vanguardinvestor.co.uk/inve ... s/overview

That is not great, but it is not negative. NS&I income bonds yield less at 1.15%:

https://www.nsandi.com/income-bonds

Nonetheless, the Vanguard fund is not attractive outside a tax shelter. I am gradually replacing that fund in my ISA with bank and building society bonds outside, as I sell UK equities outside my ISA and replace them with equity trackers inside.

MartynC27
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Re: Moving from active to Vanguard Passive?

#276933

Postby MartynC27 » January 12th, 2020, 11:22 pm

GeoffF100 wrote:
Hariseldon58 wrote:On the bond front, I left out the global fund as I don’t want the negative yield/zero yield and so have stuck with US bonds , government and corporate plus some VEMT Emerging gov’t plus NS&I income bonds instead of gilts.

The effective Yield To Maturity (YTM) for the Vanguard Global Bond Fund is 1.4%:

https://www.vanguardinvestor.co.uk/inve ... s/overview

That is not great, but it is not negative. NS&I income bonds yield less at 1.15%:

https://www.nsandi.com/income-bonds

Nonetheless, the Vanguard fund is not attractive outside a tax shelter. I am gradually replacing that fund in my ISA with bank and building society bonds outside, as I sell UK equities outside my ISA and replace them with equity trackers inside.


If you don't mind me asking - What is the main reason for replacing your 'Vanguard-global-bond-index GBP-hedged fund' in an ISA with bank and building society bonds outside an ISA ? I thought this fund was a good risk diversifier ? Won't these attract tax outside of an ISA wrapper once this interest exceeds £1000. Are you going to restrict access in order to get a higher interest rate from the building societies? In the long term do you intend to hold only equity trackers in your ISA and Cash/ Bonds outside ?

GeoffF100
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Re: Moving from active to Vanguard Passive?

#276960

Postby GeoffF100 » January 13th, 2020, 8:19 am

MartynC27 wrote: If you don't mind me asking - What is the main reason for replacing your 'Vanguard-global-bond-index GBP-hedged fund' in an ISA with bank and building society bonds outside an ISA ? I thought this fund was a good risk diversifier ? Won't these attract tax outside of an ISA wrapper once this interest exceeds £1000. Are you going to restrict access in order to get a higher interest rate from the building societies? In the long term do you intend to hold only equity trackers in your ISA and Cash/ Bonds outside ?

I am replacing the bonds in the ISA with a FTSE 100 tracker. I am selling an equivalent amount of directly held UK high yield shares outside the ISA and replacing them with bank and building society bonds. That reduces my taxable income outside the ISA, and hopefully increases the rate at which my tax free investments grow within the ISA. I could elaborate about the effect on my income, tax position and the likely effect of political changes, but hopefully I have clarified the picture.

The YTM of the Vanguard Global Bond fund is currently 1.4%. The effective return of the fund is greater than that because of the effect of bonds slipping down the yield curve as they mature. That adds about another 2.5% currently, so the effective yield is about 1.65%.
Last edited by tjh290633 on January 13th, 2020, 9:49 am, edited 1 time in total.
Reason: Tag corrected

MartynC27
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Re: Moving from active to Vanguard Passive?

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Postby MartynC27 » January 13th, 2020, 12:56 pm

GeoffF100 wrote:
MartynC27 wrote: The YTM of the Vanguard Global Bond fund is currently 1.4%. The effective return of the fund is greater than that because of the effect of bonds slipping down the yield curve as they mature. That adds about another 2.5% currently, so the effective yield is about 1.65%.


As I am a Buy and Hold investor I was looking at options for non-Equity part of my Portfolio. I already hold some Bond ETFs with higher risk & return (iShares Corp Bonds (IS15) + (SLXX) and EM Sovereign Bonds Hedged (SBEG) but I understand these will not help to hedge the Equity risk in my portfolio.

I am now looking for investments to hedge the Equity risk from the Global ETFs in my portfolio. I have a lot of cash in instant access ISAs accounts so I was trying to work out if the Vanguard Global Bond fund or Bonk or Building society Bonds are the best way to go.

I understand that some investors prefer to use NS&I Bonds or Bonk or Building society cash Fixed term accounts instead of Gilts or funds such as Vanguard Global Bond fund. It appears to me that to get a similar/ better rate from a Bonk or Building society then I would need get fixed term accounts of 6 months or more. Besides loosing quick access to the cash are there any other disadvantages to using Bonk or Building society term accounts to Hedge the risk in my portfolio from the Global Equities ?

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Re: Moving from active to Vanguard Passive?

#277044

Postby GeoffF100 » January 13th, 2020, 1:15 pm

Vanguard Global Bond fund (or VAGP) are good in a tax free account, but rubbish outside one. Cash ISA interest rates are usually lower than interest rates outside, and ISA transfers can be slow.

You are best to maximise ISA and pension contributions if you can, even if they are not immediately advantageous to you. Nonetheless, there is political risk here. The current tax privileges may not continue.

The best way to use bank and Building Society bonds is to maintain a ladder. Buy a five year (usually the maximum term) bond every year. Once you have filled the ladder, you will have a bond maturing every year. Clearly, you will also need to have an "instant access" cash reserve to fill the gaps.

Long dated government bond prices usually have negative correlations with equity prices. There is a good chance that these bonds will increase in price when equity prices fall, and vice versa.

MartynC27
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Re: Moving from active to Vanguard Passive?

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Postby MartynC27 » January 14th, 2020, 1:54 pm

GeoffF100 wrote:Vanguard Global Bond fund (or VAGP) are good in a tax free account, but rubbish outside one. Cash ISA interest rates are usually lower than interest rates outside, and ISA transfers can be slow.

You are best to maximise ISA and pension contributions if you can, even if they are not immediately advantageous to you. Nonetheless, there is political risk here. The current tax privileges may not continue.

The best way to use bank and Building Society bonds is to maintain a ladder. Buy a five year (usually the maximum term) bond every year. Once you have filled the ladder, you will have a bond maturing every year. Clearly, you will also need to have an "instant access" cash reserve to fill the gaps.

Long dated government bond prices usually have negative correlations with equity prices. There is a good chance that these bonds will increase in price when equity prices fall, and vice versa.


I understand the Vanguard Global Bond fund (or VAGP etf) consists of a blend of quality Investment Grade Corporate and Government Bonds from the Developed World with an overall average rating of AA- and duration of approx 7.3 yrs.
For a passive investor do you consider this Vanguard Global Bond fund (or VAGP) the only general low risk investment you need to hold alongside an Global Equity index ETF such as VEVE in an ISA or SIPP. I understand some investors choose to hold other types of Bonds such ETF VGOV (longer Duration) which may be more negatively correlated to stocks or IGLS (shorter Duration) which I assume is lower risk.
Are these any other types Bond really adding anything or has the Vanguard Global Bond fund (or VAGP) been designed bond investment you need to hold alongside a Global Equity Tracker in an ISA or SIPP?

GeoffF100
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Re: Moving from active to Vanguard Passive?

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Postby GeoffF100 » January 14th, 2020, 4:46 pm

MartynC27 wrote:I understand the Vanguard Global Bond fund (or VAGP etf) consists of a blend of quality Investment Grade Corporate and Government Bonds from the Developed World with an overall average rating of AA- and duration of approx 7.3 yrs.
For a passive investor do you consider this Vanguard Global Bond fund (or VAGP) the only general low risk investment you need to hold alongside an Global Equity index ETF such as VEVE in an ISA or SIPP. I understand some investors choose to hold other types of Bonds such ETF VGOV (longer Duration) which may be more negatively correlated to stocks or IGLS (shorter Duration) which I assume is lower risk.
Are these any other types Bond really adding anything or has the Vanguard Global Bond fund (or VAGP) been designed bond investment you need to hold alongside a Global Equity Tracker in an ISA or SIPP?

It would be reasonable to just hold one of those funds. VGOV would be more likely to cushion a fall, particularly a big one. There is also a case for having some index linked gilts, to provide some protection against rampant inflation. Your time horizon is a relevant factor here. I suggest that you look at the allocations of the Vanguard Target Retirement funds. This article:

https://monevator.com/the-slow-and-stea ... e-q4-2019/

and particularly its links are also relevant.

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Re: Moving from active to Vanguard Passive?

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Postby GeoffF100 » January 14th, 2020, 6:54 pm

MartynC27 wrote:For maximum Total Return I feel there is no value in adding the Vanguard Global Dividend ETF VHYL mentioned by Hariseldon58. This etf is more expensive and has provided a lower Total Return over the last 5 years (Are funds selecting companies paying higher dividends in fact focusing on companies that have lower growth leading to a lower Total Return ?)

The risk adjusted return should be the same for individual shares, but the risk and return are both very hard to assess. Nonetheless, high yield shares have been popular in recent years, which has pushed up the price. Restricting a fund to high yield shares also reduces the diversification - whole sectors get missed out - which increases risk and reduces the risk adjusted return.


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