Vanguard LifeStrategy performance breakdown?

[Mogul]

TL;DR

If Vanguard state that their LifeStrategy 40% fund has a Total Return of 2.81% pa (on a rolling 12 month basis to 31 Oct 20), how much of that is coming from the 'yield' and how much is coming from the change in the value of each unit; and why do they report the same total return on both their accumulation and income classes?

The long version...


Family member has an IFA who offers his own Model Portfolios and is in a Risk Level 4 (of 10) with an Income objective and fund costs of 0.65%.

Yield has been running at 2.5-3.0%pa but the principal value took a massive Covid knock (down 18%!) and has yet to fully recover (sitting around 10% off its pre-Covid level).

I took a look at couple of the Vanguard LifeStrategy funds (20% & 40% equity) to compare what they would have delivered over the past two years to 31 Oct 2020.

Interesting to see that (based on closing NAV prices) neither Vanguard fund dropped by nearly as much and both appear to have recovered remarkably quickly to their pre-Covid levels (certainly within 5 months or so) which is impressive; not least by comparison to the model portfolio in question!

Thinking about total returns, I tried to find the 'yield' on the Vanguard funds and taking VGLS40I(GBP) [INCOME UNITS] as a possible benchmark, I found the Total Return bar chart which states 2.81% for the year to 21 Oct 20 and 9.74% for the prior year.

I then flicked over to the equivalent VGLS40A(GBP) [ACCUMULATION UNITS] to see if reported performance was different but it isn't.. It's identical.

How does this work in practice? If you hold the income units, presumably Vanguard pays you income periodically, but if you hold the accumulation units, the same income will be reinvested (more units) so I would have thought that this would have been reflected in the cumulative performance of the accumulation class...

[xeny]

Mogul said:

if you hold the accumulation units, the same income will be reinvested (more units)

No, more expensive units,rather than more of them.

[bitchstewie]

I think they're just quoting total return i.e. income reinvested.

[Gixer968CS]

With Accumulation units the income is simply added back in to the NAV of the fund thereby increasing the price rather than giving you new units. With income units the income will be reinvested to buy additional units and so your number of units grows. If you have income units you don't always have to take the income, it can be reinvested to but more units or you can opt to take the income in the form of cash distributions (don't know specifically at Vanguard).

It is very common for fund provided to quote performance with income reinvested (total return)

[Mogul]

So not readily possible to break down the total return between the yield and the change in the NAV?

[Gixer968CS]

If you look at Trustnet you may be able to ask for performance without income reinvested, or simply find the income unit price on the two days at each end of your performance period and work it out.

[bitchstewie]

Mogul said:

So not readily possible to break down the total return between the yield and the change in the NAV?

If you go here you can add the income and accumulation funds and see the difference in return.

https://www2.trustnet.com/Tools/Charting.aspx?type...

[Gixer968CS]

The fact sheet for the 40% equity fund says it has a yield (dividend) of 1.44%. This is an estimate based on previous payouts v's the current share price, but it'll give you an idea of how much of the total return came from income.

[Mopey]

To that end then is the income version better as you get more units if the value rises for example. I think I have accumulation for my 80% ISA. perhaps I’ve made a mistake!

[Mogul]

Thanks all.

[bitchstewie]

Broadly speaking if you don't specifically need income (or are buying income units to make tracking gains easier) accumulation units are simpler because you don't have to think about reinvesting dividends.

[xeny]

Mopey said:

To that end then is the income version better as you get more units if the value rises for example. I think I have accumulation for my 80% ISA. perhaps I’ve made a mistake!

No, as you pay a fee to reinvest dividends, so you'll do slightly better overall with acc units.

In a taxable account you typically want to buy inc units as separating capital gains vs dividend gains for tax returns is easier.

[Mogul]

Presumably they would send you an end of year statement showing the (potentially) taxable income?

[xeny]

Yes, that is normal practice.

[rdjohn]

Mogul said:

Presumably they would send you an end of year statement showing the (potentially) taxable income?

I can confirm that you will be offered a Consolidated Tax Certificate for each fund which tells you the Dividend received in the tax year and U.K. Tax Credit which is zero.

It is usually generated in May