Many people will not have heard of Vanguard’s LifeStrategy fund range, but if you have a pension or use a financial adviser the chances are that you hold it or a fund like it.
The funds are low-cost, one-stop-shop portfolios that aim to give exposure to a range of assets at low cost. They use “passive” funds, which are cheap and track a stock market, as opposed to “actively managed” alternatives.
“Passive” funds have boomed recently as active managers often fail to outperform and as investors have become more cost conscious.
Portfolios assembled from passive funds have become the default options for many individuals’ company pension schemes and are frequently used by advisers.
Vanguard’s £5bn LifeStrategy range has become highly popular and is often tipped by the advisers who contribute to our Money Makeover series. Only this week AJ Bell, the investment shop, launched a rival range.
The funds are available for an “ongoing” charge of 0.22pc a year. There are five in total: the least risky has 20pc in shares and 80pc in bonds, while the most risky has 100pc in shares.
But Vanguard is not the only asset manager to offer a cheap one-stop-shop investment option. Telegraph Money looks at its main competitors.
The BlackRock range is similar to Vanguard’s. The five funds, which collectively have £8.9bn invested in them, also offer mixes of shares and bonds and are intended to be ready-made portfolios.
Unlike Vanguard, which aims to stick to a particular share allocation for each of the five funds, the BlackRock funds are more flexible, and the share allocation must only sit within a range.
For instance, the BlackRock Consensus 85 fund can be between 40pc and 85pc invested in shares.
The BlackRock funds typically cost 0.23pc, although discounts may be available via certain fund shops. Hargreaves Lansdown, for instance, offers the BlackRock Consensus 85 fund for just 0.09pc.
Patrick Connolly, a financial planner at Chase de Vere, the advisory firm, said: “Vanguard’s split between shares and bonds is fixed, and exposure is heavily focused on the US and international markets.
“The BlackRock funds decide weightings depending on the average in the relevant sector, and are more heavily focused on the UK.”
This means the BlackRock funds change according to what active fund managers who invest in the same area are doing.
Mr Connolly said there was no right or wrong style, although Vanguard’s more international approach had recently delivered stronger returns thanks to the weakness of the pound and strength of the American stock market.
L&G has a £1.8bn range of eight “Multi-Index” funds that serve a similar purpose.
There are five for growth and three for income, catering for investors with different risk appetites. The growth funds have an ongoing charge of 0.31pc, while the income funds range in cost from 0.36pc to 0.39pc. Again, some fund shops may offer discounts.
Unlike the Vanguard funds, which stick to their asset weightings, and the BlackRock funds, which sway with sector moves, the asset allocation of the L&G funds is “active”.
This means that L&G decides which assets look most promising to invest in at any one time.
It will keep these choices appropriate to the fund’s risk level, but will make a decision, for example, about whether British or American companies look more attractive.
Standard Life MyFolio
The MyFolio Market range from Standard Life Investments has five lowcost portfolios that invest in passive funds.
This £2.9bn range is the most expensive, at between 0.45pc and 0.52pc if bought through a fund shop. Charges are higher if you buy directly from Standard Life.
The funds range from investing in safer assets, such as MyFolio Market I, which invests more in cash and bonds, to riskier options, such as MyFolio Market V, which invests more in shares. Market V typically has around 90pc of the fund invested in stocks.
The managers look at the asset split every three months and may decide to change the investments. The portfolios also use some “active” funds, but only for property.
Options: BlackRock, which is headquartered in the City of London’s Walbrook Building, offers funds to rival Vanguard’s LifeStrategy