Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

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jolmscheid
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Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by jolmscheid » Mon Jun 29, 2020 4:33 pm

Hello All.

I believe based on my research on this forum that the Vanguard Lifestrategy funds used to be actively managed...is that correct? I ask as it is difficult to compare these funds then to say a 3-fund portfolio in terms of their results. It is pretty evident in Portfolio Visualizer that the Lifestrategy funds have very much underperformed...I would assume this is due to a mix of them being actively managed in the past, and having a relatively larger allocation to international (which has underperformed as well)?

02nz
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by 02nz » Mon Jun 29, 2020 4:35 pm

They’ve been index-based for as long as I can remember. If you are talking about underperformance in the past decade or so, yes that’s when int’l has underperformed US. Was not always so and may not always be so. :happy

ETA: Looks like part of the funds was active until 2011: https://www.bogleheads.org/wiki/Vanguar ... ite_note-5

KlangFool
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by KlangFool » Mon Jun 29, 2020 4:41 pm

jolmscheid wrote:
Mon Jun 29, 2020 4:33 pm
Hello All.

I believe based on my research on this forum that the Vanguard Lifestrategy funds used to be actively managed...is that correct? I ask as it is difficult to compare these funds then to say a 3-fund portfolio in terms of their results. It is pretty evident in Portfolio Visualizer that the Lifestrategy funds have very much underperformed...I would assume this is due to a mix of them being actively managed in the past, and having a relatively larger allocation to international (which has underperformed as well)?
jolmscheid,

Yes and no.

A portion of the Lifestrategy fund was in an asset allocation fund. That fund was ONLY invested in stock and bond index. The active part was it can change the ratio between the stock and the bond index fund. It did not help or boast the Lifestrategy fund's performance. Hence, it was dropped.

KlangFool

02nz
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by 02nz » Mon Jun 29, 2020 4:43 pm

KlangFool wrote:
Mon Jun 29, 2020 4:41 pm
A portion of the Lifestrategy fund was in an asset allocation fund. That fund was ONLY invested in stock and bond index. The active part was it can change the ratio between the stock and the bond index fund. It did not help or boast the Lifestrategy fund's performance. Hence, it was dropped.
Looks like that entire fund (VAAPX) was closed at the end of the 2011. The strategy, as I recall, was all market-timing - moving in and out of the stock market.

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jolmscheid
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by jolmscheid » Mon Jun 29, 2020 4:47 pm

02nz wrote:
Mon Jun 29, 2020 4:43 pm
KlangFool wrote:
Mon Jun 29, 2020 4:41 pm
A portion of the Lifestrategy fund was in an asset allocation fund. That fund was ONLY invested in stock and bond index. The active part was it can change the ratio between the stock and the bond index fund. It did not help or boast the Lifestrategy fund's performance. Hence, it was dropped.
Looks like that entire fund (VAAPX) was closed at the end of the 2011. The strategy, as I recall, was all market-timing - moving in and out of the stock market.
So, to get a better idea of apples to apples to say a 3-fund portfolio, one would need to compare from 2012 onward?

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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by Brianmcg321 » Mon Jun 29, 2020 4:49 pm

The one thing I never liked about the LS funds was they never seem to keep the asset allocation constant throug the years. Essentially making them sort of managed.
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by Dandy » Tue Jun 30, 2020 8:29 am

Depends on what you call active. VG has made numerous changes to allocations and content in LIfe Strategy and TD funds. I believe all the funds used were not actively managed in the traditional sense. But the LS & TD funds have been "managed" and VG reserves the right to make changes in allocations and fund content.

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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by nisiprius » Tue Jun 30, 2020 8:44 am

Yes and no. They definitely used a gentle tactical asset allocation.

In the very earliest days they were funds-of-funds, investing only in index funds, and holding fixed allocations each fund--as they do now.

Very soon after inception, they became--they didn't use the phrase--tactical asset allocation funds, and the allocations were now only a "neutral point" around which the actual allocations were to be adjusted. My memory is that this was not originally done by using the Vanguard Asset Allocation fund, VAAPX, but I might be wrong. Later on, the way in which the fund implemented tactical asset allocation was by using fixed percentages of Total Stock, Total Bond, etc. plus a fixed percentage of VAAPX, which, itself, varied its own allocation to stocks and bonds.

Since IIRC VAAPX varied its allocation according to a "quantitative model," it lived in the half-world between active and passive.

At some point, people in the forum noticed that VAAPX was 100% stocks and had been that way for a while, i.e. the funds were theoretically still using tactical asset allocation but weren't changing their allocations.

Then at some point, about 2011, Vanguard officially announced that VAAPX was going to be frozen at 100% stocks and discontinued, and that the LifeStrategy funds would henceforth have fixed allocations.

There have also between minor changes and adjustments in the portfolios held: increases in the percentage of international stocks, and the addition of international bonds.

So, yes, the "product summary" statement must have been different in the past from what it is today. Currently, that statement for VSMGX says it follows
...an all-index, fixed allocation approach...The fund holds 60% of its assets in stocks, a portion of which is allocated to international stocks, and 40% in bonds, a portion of which is allocated to international bonds.
In comparison, the Vanguard Balanced Index Fund has stayed the same over its whole life except for one very subtle change. Originally and for a long time it was literally a fund-of-funds, actually investing 60% in the Total Stock fund and 40% in the Total Bond fund. Now it does something that is so subtly different that I don't really understand it:
Vanguard Balanced Index Fund seeks —with 60% of its assets—to track the investment performance of a benchmark index that measures the investment return of the overall U.S. stock market. With 40% of its assets, the fund seeks to track the investment performance of a broad, market-weighted bond index.
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by maj » Tue Jun 30, 2020 9:36 am

Nisi,

Thanks for the history. I have owned LifeStrategy Growth (80-20) since it was opened about 25 years ago, and have done well while sleeping easy.

Recently, the equity portion of the LS funds increased international to 40%. I was uneasy with that, preferring a steady 20% international.

So I invest equally in Balanced Index (60-40) and LS Growth (80-20), giving me 20% international stock, at a combined expense ratio of about 11 basis points per annum.

And an over all bond allocation of 30%--just enough to take the froth off a global portfolio.

Any thoughts?

Thanks for all the information you so generously share.

peace

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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by maj » Tue Jun 30, 2020 9:51 am

Nisi,

Your final remark re Balanced Index Fund pertains, I think, to management's decision to switch from holding the Total US Stock Index Fund as 60%, and Total US Bond Market Fund as 40%, to holding all the individual securities in both indexes.

Why Vanguard made that switch would be interesting know. Does it save on the expense ratio? Why wasn't that same switch made in the LS funds and the Target Date Funds?

peace

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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by sycamore » Tue Jun 30, 2020 9:52 am

maj wrote:
Tue Jun 30, 2020 9:36 am
Nisi,

Thanks for the history. I have owned LifeStrategy Growth (80-20) since it was opened about 25 years ago, and have done well while sleeping easy.

Recently, the equity portion of the LS funds increased international to 40%. I was uneasy with that, preferring a steady 20% international.

So I invest equally in Balanced Index (60-40) and LS Growth (80-20), giving me 20% international stock, at a combined expense ratio of about 11 basis points per annum.

And an over all bond allocation of 30%--just enough to take the froth off a global portfolio.

Any thoughts?

Thanks for all the information you so generously share.

peace
Maj,
Just double checking your "20% international stock"... with LS Growth by itself at 48% US stock, 32% Intl stock, 14% US bonds, 6% Intl bonds, by my calculations, a 50/50 split between Balanced Index and LS Growth gives you:
54% US stock, 16% Intl stock, 27% US bonds, 3% Intl bonds. Maybe close enough?

Anyway, that's a good way to have a reasonably diversified portfolio. One usual concern is with asset location. If you have either of these funds in a taxable account, it'll be sub-optimal though in these days of low bond returns not sub-optimal by much.

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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by maj » Tue Jun 30, 2020 11:20 am

Sycamore, thanks for the correction. I should have been more careful.

Yes, at the time I made the move to split between the two funds, I noted the the international would be 16%. I decided that 16% was enough at my age, and I wanted the simplicity of a 50-50 re-balancing occasionally.

The two funds are in my IRA.

However, I have reached the conclusion that I will not worry about minor tax increases in my taxable allocations since bond yields are so low, and will likely remain low as long as I live.

peace

MadHungarian
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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by MadHungarian » Tue Jun 30, 2020 12:11 pm

Yes, Vanguard has a long track record of putting three good funds and one flaky fund into their LifeStrategy funds.
In the old days, the flaky fund was that Asset Allocation thing. Generated a lot of hubris with its wild swings between stocks & bonds, but ended up just reducing returns.
These days i'd consider the International Bond fund to be the 'flaky' fund.

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Re: Was Vanguard's LifeStrategy Funds ACTIVELY Managed in the Past?

Post by azanon » Tue Jun 30, 2020 12:21 pm

MadHungarian wrote:
Tue Jun 30, 2020 12:11 pm
Yes, Vanguard has a long track record of putting three good funds and one flaky fund into their LifeStrategy funds.
In the old days, the flaky fund was that Asset Allocation thing. Generated a lot of hubris with its wild swings between stocks & bonds, but ended up just reducing returns.
These days i'd consider the International Bond fund to be the 'flaky' fund.
I do too, but only because they hedge the currency. Otherwise though, International bonds are the largest global asset, so to exclude them would seem a bit strange to me.

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