A comparison of two similar Vanguard Funds – the LifeStrategy 100 Equity Fund vs the FTSE Global All Cap Index Fund.
The LifeStrategy 100 and FTSE Global All Cap (shortened to LS100 and GAC going forward) are two commonly recommended funds for beginners who may have recently decided to start investing in a passive global index tracker.
When deciding which of the two to invest in a few years ago, I did some research and made some notes to weigh up my decision. I’ve recently gone back to these notes to double check my thinking. I thought I could tidy them up and post them on the blog. Same rationale as the recent Intelligent Investor book notes – doing so forces me to make my notes intelligible to read (useful for me if a friend or family member asks about them – which has been happening more and more lately), and may well help some readers as well.
The usual warnings apply, but especially here where I’m talking about actual investments – I am not a financial adviser! I am not qualified or licensed to give financial advice. This is all just the result of me reading and collating info from various sources. I cannot be held liable for any loss of money that you may incur after reading this post (and indeed this blog). This is just provided for general info. As always, do your own research.
LifeStrategy 100 vs FTSE Global All Cap
The LS100 and GAC are two funds offered by Vanguard that broadly appear to do the same thing; provide a one-stop shop where an investor can set and forget their investment.
At first I wasn’t sure which to invest in, so I decided to pit them against each other and see which appeared to be better.
Vanguard LifeStrategy 100
The LifeStrategy 100 is a ‘fund of funds.’ In other words, it places its assets into a variety of Vanguard passive funds, each of which will track a different index. The exact composition of the portfolio can be found on Vanguard’s website. It has an ongoing charge (OCF) of 0.22%
The fund is actively managed; an investment adviser has discretion in which funds the LifeStrategy 100 invests in and the relative allocations.
Global FTSE Global All Cap Index Fund
A passive fund that aims to track the performance of the FTSE Global All Cap Index. The index is comprised of large, mid and small company shares in developed and emerging markets. The exact composition of the fund is available on Vanguard’s website. It has an OCF of 0.23%.
- Asset allocation – The LS100 consists of ~25% UK, whereas the GAC has only 4.4%. The LS100 will then have comparatively less of every other index.
- Cost – 0.22% vs 0.23%. This difference of 0.01% means that the GAC will cost an extra £10 per year for every £100,000 invested in the fund.
- The GAC passively tracks an index, the LS100 is an actively managed collection of passive funds.
Why does the LifeStrategy 100 favour the UK?
The GAC is a more ‘true’ representation of the global market. In books like Investing Demystified, it is recommend that you should own shares in all of the market’s stocks, weighted according to their fraction of the overall value of the market (the author of the book, Lars Kroijer, explained his reasoning in an excellent post over at Monevator).
The UK has a market cap of roughly 4-5%, whereas the US has a market cap of roughly 50%. The GAC seeks to accurately reflect this, whereas the LS100 does not.
LS100 favours the UK due to ‘home bias.’ According to Investopedia, home bias is the tendency for investors to invest the majority of their portfolio in domestic equities, ignoring the benefits of diversifying into foreign equities. . Essentially, most investors will feel an affinity for their home market and will want to invest in what they know.
Why do the portfolios have more allocated to the UK market?
“We think investors prefer to hold more in their home market but we believe it’s of benefit in terms of diversification for investors to more closely reflect the global market weightings.”
In other words, Vanguard think it is better to hold a hold a diversified portfolio that accurately reflects the global market cap. However, they choose to have a greater weighting towards the UK in the LifeStrategy funds as they think that is what investors will prefer.
Consider the other LifeStrategy offerings if you also want bonds in your portfolio
The LifeStrategy series truly shines when you start to factor in bonds as well.
You might decide to invest 80% of your portfolio in the GAC and the remaining 20% in a bond index (for example, Vanguard’s Global Bond Index Fund. However, you would have to manage the two funds yourself as the prices of both rise and fall. Unless you step in every few months, your asset allocation could become increasingly out of line with your original intentions as prices fluctuate.
Meanwhile, if you were to invest in the LS80 fund, it would do all the tinkering for you and maintain that constant ratio of 80% equities and 20% bonds.
Ultimately, if choosing solely between these two, then I think the GAC makes the most sense. It most accurately reflects global market capitalisation.
However, if you want to add some exposure to bonds, then you could do worse than simply deciding how much equity vs bonds you want, and then choosing the corresponding Lifestrategy fund (be it LS20, LS40, LS60 or LS80).
Overall, the two funds aren’t that different, so you can’t go too far wrong with either one. If you’re at the beginning of your investing career, just choose one and go for it. You can always change your mind later!
Over to you
If you’re new to investing, hopefully you found this comparison of the LifeStrategy 100 vs the FTSE Global All Cap funds useful.
If you’re not new, hopefully you think I did a good job explaining it!
I may well have made a mistake somewhere. Feel free to correct me if you spot anything.
What funds have you chosen to invest in?
Thanks for reading.