Vanguard vs Fundsmith?

[The Green Triangle]

Wise finance people of pistonheads,

I have a conundrum I would like some help with. I have 10K lump sum to invest through i-web and then around 1500 month to top up the isa and invest. Originally I’ve looked at going down the passive fund route and was aiming to chuck the lot into a vanguard 80 20 fund. Although, recently I’ve been considering the fundsmith option too.

Vanguard has lower costs (0.22% I think) and while the Fundsmith option is more costly (around 1%) the returns look more attractive.
Would investing in both be doubling up too much on the same areas?

Am i too late to the party re: Fundsmith. In some of the books I’ve read, (Smarter Investing for one – good read that) it mentions that if a fund looks too good to be true it normally is, and if it’s performing well you’ve probably missed the boat.

Is fundsmith more risky? I understand it is relatively new and so not gone through a cycle yet, I’m assuming it is therefore potentially more risky. My appetite is medium high. My gut would be to do a 60:40 between Vanguard and Fundsmith if it’s not overlapping too much.

Anyway enough of my babbling…I’ve looked at quite a lot of material (Morning Star, etc) and still none the wiser…Advice welcomed for a newbie…:-)

[williaa68]

There's an overlap in that they are both equity funds (or 80% equity funds in the case of Vanguard) and most stocks are correlated to each other to some degree but fundsmith is (a) concentrated and (b) there are lots of things that Terry Smith doesn't invest in so there's lower overlap that some "active" fund managers who are closet index trackers.

I have in fact been discussing fundsmith with my IFA as its performance has given me a significant CGT liability - a quality problem to have. He thinks I should diversify but I don't think i will, I will simply direct new money (e.g. this years ISA allowance) elsewhere. I will probably put that into a Vanguard product but at a lower equity percentage than the one you are suggesting. I am definitely not an IFA but a 60/40 split doesn't sound too bad. I am sure, however, my IFA would recommend more than two funds. Terry Smith's letters to shareholders on the Fundsmith website are worth a read for more background on his style / investment philosophy

[PhilboSE]

williaa68 said:

Terry Smith's letters to shareholders on the Fundsmith website are worth a read for more background on his style / investment philosophy

Very much agree that Terry Smith's letters are worth reading. Salutory lessons are held within - particularly regarding observers who espouse firmly held beliefs as unassailable truths. Always remember - high stocks can always go higher and low stocks can always go lower. My ex-IFA told me to bail out of Fundsmith last year on the grounds that it had peaked. It went up 30% in the intervening months.

To answer your questions, you've got two extremes towards fund management - automated and very low cost vs highly selective actively managed. Fundsmith is biased towards US stocks, apart from them both being equity funds I don't see a massive crossover.

[The Green Triangle]

Thanks. I will certainly take a look at Terry's letters. Sounds like a 60:40 allocation wouldn't be too bonkers then and there's acceptable overlap. I will keep doing my research but this is hopefully a good starting point. Cheers for your views.

[bitchstewie]

Any more feedback/thoughts on this please?

Looking at a S&S ISA where I can throw in £5k or so and add a couple of hundred a month so nothing crazy but enough not to want to fk it up totally

Seems between this and Vanguard LifeStrategy 60, could split them but for simplicity it seems easier to pick one and go direct?

[Orchid1]

bhstewie said:

Any more feedback/thoughts on this please?

Looking at a S&S ISA where I can throw in £5k or so and add a couple of hundred a month so nothing crazy but enough not to want to fk it up totally

Seems between this and Vanguard LifeStrategy 60, could split them but for simplicity it seems easier to pick one and go direct?

I opened a stocks and shares isa just over a year ago with rplan and picked the funds myself including Vanguard Lifestrategy 80 and Fundsmith. All the funds have grown (the Fundsmith especially). Just before christmas I chucked some more money into a few more funds (this time more passive index tracker funds) so my ISA is now about 60% tracker and 40% managed. I did this because of rumblings about volatility an impending bear market and apparently in the past trackers have still managed to outperform managed funds in situations like this however who can tell what's going to happen is always the question.

Take a look at Wealthify, you can open an account with as little as a pound top it up by as little as a pound anytime you like. They invest in tracker funds but they use a computer algorithm to monitor global markets everyday and make constant adjustments to your investment including selling down and holding it in cash if things get too hairy. Their recent returns report doesn't look to bad see https://www.wealthify.com/blog/wealthify-s-12-mont... however of course if we are heading towards a bear market then it remains to be seen if they can keep it up.

[BanzaiMan]

bhstewie said:

Any more feedback/thoughts on this please?

Looking at a S&S ISA where I can throw in £5k or so and add a couple of hundred a month so nothing crazy but enough not to want to fk it up totally

Seems between this and Vanguard LifeStrategy 60, could split them but for simplicity it seems easier to pick one and go direct?

I don't see how you can realistically compare the two

[BanzaiMan]

Orchid1 said:

but they use a computer algorithm to monitor global markets everyday and make constant adjustments to your investment including selling down and holding it in cash if things get too hairy.

It will be interesting to see if over the long term, and net of all additional costs, it outperforms a boring buy and hold equivalent.

[bitchstewie]

BanzaiMan said:

I don't see how you can realistically compare the two

Perhaps you can't but that's where people who'd gamble £200/month don't have to understand anything but those wanting to stick £200/month somewhere and simply see a good return over medium to long term have a lot to take in as everyone has an opinion

I'm not trying to overthink it, my primary concern is a decent return and being confident that over the medium to long term (5 plus years) I'm not going to lose my money - plus being able to access it should an emergency arise.

[BanzaiMan]

bhstewie said:

BanzaiMan said:

I don't see how you can realistically compare the two

Perhaps you can't but that's where people who'd gamble £200/month don't have to understand anything but those wanting to stick £200/month somewhere and simply see a good return over medium to long term have a lot to take in as everyone has an opinion

I'm not trying to overthink it, my primary concern is a decent return and being confident that over the medium to long term (5 plus years) I'm not going to lose my money - plus being able to access it should an emergency arise.

What are the downsides of going for the Vanguard fund?
Maybe worth considering ensuring you have enough of a cash based emergency fund so there is a very small chance you have to access the investments.
Out of interest what made you think about Vanguard 60% equity rather than 40% or 80%?

[bitchstewie]

BanzaiMan said:

What are the downsides of going for the Vanguard fund?
Maybe worth considering ensuring you have enough of a cash based emergency fund so there is a very small chance you have to access the investments.
Out of interest what made you think about Vanguard 60% equity rather than 40% or 80%?

Off my limited understanding 60% seems a "moderate" balance between safety and risk.

Appreciate Fundsmith is fully equities but off my understanding the choices are based around stability vs. wild risks promising quick rewards.

[Tresco]

BanzaiMan said:

What are the downsides of going for the Vanguard fund?
Maybe worth considering ensuring you have enough of a cash based emergency fund so there is a very small chance you have to access the investments.
Out of interest what made you think about Vanguard 60% equity rather than 40% or 80%?

I invested in the Vanguard 80% fund August 2017 currently up 2.5%, also invested in Fundsmith over the last 2 years which has performed very well.

There is a lot of comment that Fundsmith is toppy, Terry Smith in semi retirement etc but I was told it was toppy 2 years ago.

[rdjohn]

BanzaiMan said:

I don't see how you can realistically compare the two

I agree, chalk and cheese. Vanguard LifeStraegy funds are extremely diverse, effectively being a fund of funds, each fund with diverse objectives. The asset classes can be reassigned by their target percentage dependent individual fund performance.

The other is a very large equity fund heavily biased towards the US. These and European assets have increased greatly because of the fall in value of Sterling during the last 18 months. That fall has also had a positive effect on the FTSE 100.

That effect is not likely to continue over the next 5 years. Not sure why a Vanguard 60/40 split seems more advantages either given current low interest rates.

[PorkInsider]

Fundsmith is up 46.3% over the past 3 years.

Thought I'd add that to the thread for no other reason than it's 3 years since the OP started this thread and I found it while searching for something else.

https://www.fundsmith.co.uk/docs/default-source/eq...

[Simpo Two]

Orchid1 said:

but they use a computer algorithm to monitor global markets everyday and make constant adjustments to your investment including selling down and holding it in cash if things get too hairy.

How well did that work this year I wonder? It was certainly a time to put those words to the test.

[Derek Chevalier]

PorkInsider said:

Fundsmith is up 46.3% over the past 3 years.

Thought I'd add that to the thread for no other reason than it's 3 years since the OP started this thread and I found it while searching for something else.

https://www.fundsmith.co.uk/docs/default-source/eq...

How has he done compared to an arguably more representative benchmark?

https://www.msci.com/documents/10199/bcb64e9b-267c...

[Phooey]

And more to the point- how has he done compared to PH Equity?

[JulianPH]

Phooey said:

And more to the point- how has he done compared to PH Equity?

65% over the 3 years to the end of March and another 12% from then to date.

Add in the decimal points and this would have delivered just shy of 78%.

[BlackG7R]

I'm also a fan of both Vanguard and Fundsmith, and I don't think it does any harm to have have bit of both.

These AGM's are also well worth watching IMO.

https://www.youtube.com/watch?v=PZy9-4Z_4i8

[PorkInsider]

JulianPH said:

Phooey said:

And more to the point- how has he done compared to PH Equity?

65% over the 3 years to the end of March and another 12% from then to date.

Add in the decimal points and this would have delivered just shy of 78%.

That's fantastic.