What method does Vang LS funds use ?

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Spgold
Posts: 33
Joined: Fri May 10, 2019 4:52 am

What method does Vang LS funds use ?

Post by Spgold »

Hello all,

The Vanguard lifestrategy funds are a simple choice since they also do the rebalance for you.

It mentions : “ The portfolio asset allocation may be reconstituted and rebalanced from time to time at the discretion of the investment manager.”

Has anyone come across what kind of method they use ?

Do they rebalance based on bands (5/25 p.e.) or do they rebalance on certain dates (once a year p.e.) ?

Thanks
livesoft
Posts: 76865
Joined: Thu Mar 01, 2007 8:00 pm

Re: What method does Vang LS funds use ?

Post by livesoft »

this may help: https://theinquiringinvestor.com/2012/0 ... rebalance/

And this interview that Mike Piper did with John Ameriks of Vanguard:
viewtopic.php?p=2595778#p2595778
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sycamore
Posts: 2525
Joined: Tue May 08, 2018 12:06 pm

Re: What method does Vang LS funds use ?

Post by sycamore »

Spgold, given that you posted in the Non-US Investing forum, are you talking about a country-specific version of LS funds? Technically they'll be different than the US version of the funds. But my guess is Vanguard would use similar rebalancing methodology regardless.

My understanding was they rebalanced daily.
Topic Author
Spgold
Posts: 33
Joined: Fri May 10, 2019 4:52 am

Re: What method does Vang LS funds use ?

Post by Spgold »

Thank you both,

Yes I am referring to the European versions. Based on the links provided, my impression is also for daily rebalance...

I am under the impression that the more frequent the rebalance the less chance you give to the portfolio to run higher.

I run a small back test for the 60/40 portfolio from 1987 to today and came up with the following results

Annual rebalance CAGR 9,18% - Stdev 9,40% - worst year -20,20%

Monthly rebalance CAGR 9,13% - Stdev 9,43% - worst year -22,09%

So, not only a smaller CAGR, but also higher Stdev. I would expect that since profits are trimmed earlier and dips bought earlier as well, the stdev and performance would be at least better.

Can someone confirm and also explain why Stdev is higher and worse year also worse ?

Thanks
sycamore
Posts: 2525
Joined: Tue May 08, 2018 12:06 pm

Re: What method does Vang LS funds use ?

Post by sycamore »

Spgold wrote: Sun Jun 20, 2021 10:16 am Thank you both,

Yes I am referring to the European versions. Based on the links provided, my impression is also for daily rebalance...

I am under the impression that the more frequent the rebalance the less chance you give to the portfolio to run higher.

I run a small back test for the 60/40 portfolio from 1987 to today and came up with the following results

Annual rebalance CAGR 9,18% - Stdev 9,40% - worst year -20,20%

Monthly rebalance CAGR 9,13% - Stdev 9,43% - worst year -22,09%

So, not only a smaller CAGR, but also higher Stdev. I would expect that since profits are trimmed earlier and dips bought earlier as well, the stdev and performance would be at least better.

Can someone confirm and also explain why Stdev is higher and worse year also worse ?

Thanks
Spgold, I'm not sure what assets you used in your backtest. Using portfoliovisualizer.com to back test 60/40 US funds S&P 500 / Total Bond Market I get very similar numbers since Jan 1987.
Annual rebalancing: CAGR 9,21% - Stdev 9,29% - worst year -20,19%

Monthly rebalancing: CAGR 9,15% - Stdev 9,31% - worst year -22,13%

I think your impression "the more frequent the rebalance the less chance you give to the portfolio to run higher" is usually right because the stock market generally trends upward. With annual rebalancing, you give the portfolio more chance to run higher.

But some other factors are:

- with annual rebalancing, there's presumably less trading and thus lower expenses/higher return

- in a year when the stock market trends down overall (like 2008), rebalancing monthly means buying more stocks as they continue to drop, making the loss that much worse.
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asset_chaos
Posts: 2027
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: What method does Vang LS funds use ?

Post by asset_chaos »

Spgold wrote: Sun Jun 20, 2021 4:24 am Hello all,

The Vanguard lifestrategy funds are a simple choice since they also do the rebalance for you.

It mentions : “ The portfolio asset allocation may be reconstituted and rebalanced from time to time at the discretion of the investment manager.”

Has anyone come across what kind of method they use ?

Do they rebalance based on bands (5/25 p.e.) or do they rebalance on certain dates (once a year p.e.) ?

Thanks
That sentence, which I assume you're quoting from the prospectus, may not mean what you think it does. You've focused on the word rebalance, but I think the key word is reconstitute. By that line Vanguard is reserving the right to change the policy allocation of the fund. For instance, I think twice since they first started, Vanguard has raised the policy allocation to ex-US stocks in the US lifestrategy funds. Let's say the European LS funds have an allocation policy of 30% in European stocks (I don't know the real number). The sentence says Vanguard can decide to reconstitute the policy allocation to make European stocks 20% or 40% and rebalance to that new policy any time they like at their sole discretion. They haven't exercised this right often (and maybe never in the European LS funds), but they reserve the right to make changes without having to put the change to a vote of LS shareholders. That's what I think that sentence means.
Regards, | | Guy
livesoft
Posts: 76865
Joined: Thu Mar 01, 2007 8:00 pm

Re: What method does Vang LS funds use ?

Post by livesoft »

sycamore wrote: Sun Jun 20, 2021 12:10 pm Spgold, I'm not sure what assets you used in your backtest. Using portfoliovisualizer.com to back test 60/40 US funds S&P 500 / Total Bond Market I get very similar numbers since Jan 1987.....
I think portfoliovisualizer is pretty useless to backtest this because it only has monthly data and thus ignores what happens intramonth such as Oct 1987, March 2000, March 2008, March 2020, December 2018, that Brexit weekend, and on and on.
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