10 years of Vanguard LifeStrategy – detailed performance analysis from AJ Bell’s Laith Khalaf

Stock market or forex trading graph and candlestick chart suitable for financial investment concept. Economy trends background for business idea and all art work design. Abstract finance background.


  • The Vanguard LifeStrategy funds celebrate ten years in the UK market
  • Over the last decade the range has wiped the floor with active managers
  • The last year has been tough for LifeStrategy though
  • Why rising bond yields are a concern for LifeStrategy investors

Laith Khalaf, financial analyst at AJ Bell, comments:

“Vanguard’s LifeStrategy range has wiped the floor with active managers over the last ten years, with all five funds beating their sector average and the mixed asset funds nestling in the top quartile of funds in their sector. That’s quite some feat from a passive range of funds. Launched at the end of June 2011, between them the funds are now worth £29 billion, and their appeal is clear to see. They offer simple and low-cost exposure to a diversified portfolio of equities and bonds, and there are five funds which investors can choose between, depending on their appetite for risk.

“However, some of the tailwinds that have been blowing behind the LifeStrategy funds have started to change direction in the last year, and that has led to most of the range underperforming their peers over this period. Most notably, the four mixed asset LifeStrategy funds have a set exposure to bonds, and in particular long-dated government bonds. This is an area where for a considerable period, active managers have tended to be underweight, to their detriment, taking the view that bond prices have been artificially inflated by central banks hoovering up assets as part of their QE programmes. But the last year has seen bonds sell off, thanks to the arrival of vaccines and a more positive economic outlook. That’s hampered the recent performance of the mixed LifeStrategy funds compared to active managers, because the latter can reduce their bond exposure, or their portfolio’s sensitivity to interest rate rises by investing in shorter dated bonds.

“Although the LifeStrategy range has an excellent ten-year performance record, it’s fair to point out that all of that period has been characterised by loose monetary policy and a buoyant bond market. If we are entering a period with more inflationary pressures, and tightening monetary policy, the LifeStrategy funds may find their fixed exposure to long dated bonds makes it more difficult to perform. While active funds can adjust their asset weightings depending on prevailing market conditions, passive funds like LifeStrategy do not.

“Of course, if the last ten years have taught us anything, it’s not to write off the bond market and the longevity of ultra-loose monetary policy. What’s more, LifeStrategy’s rebalancing of a fixed asset allocation acts as a natural brake on exuberance, taking money out of areas that have done well, and recycling into areas that have fared poorly. However, in a bond sell off, that would mean continuing to buy bonds on the way down, and in a prolonged bond bear market, that could prove painful.”

Vanguard LifeStrategy performance analysis

The table below shows the performance of each LifeStrategy fund against its sector. Over ten years the funds have performed very well, beating the sector average in each case. The LifeStrategy 20% Equity fund is actually the best performing fund in its sector over the last ten years, reflecting the high weighting to bonds in this sector, and the tendency of active managers to be underweight long dated bonds to keep interest rate risk in check.


% Total Return Sector Rank
1 year 10 year 1 year 10 year
LifeStrategy 20% equity 3.1 73.6 62/64 1/28
IA Mixed 0-35% Equity Sector Average 6.3 47.1
LifeStrategy 40% equity 7.4 97.4 157/172 5/90
IA Mixed 40 to 60% Sector Average 11.7 65.1
LifeStrategy 60% equity 12.0 123.6 164/188 15/100
LifeStrategy 80% equity 16.7 151.0 69/188 5/100
IA Mixed 40-85% Sector Average 15.6 94.3
LifeStrategy 100% equity 21.4 179.2 277/432 118/196
IA Global Sector Average 23.3 174.4
MSCI World Index 22.0 224.9    


Source: FE total return from 23/06/2011 to 23/06/2021 and 23/06/2020 to 23/06/2021

The ten-year performance of the LifeStrategy 100% Equity is not quite as stellar as the mixed LifeStrategy funds, only slightly outperforming the sector and actually underperforming the MSCI World Index. That can be attributed mainly to two factors. The fund is 100% invested in equities, and so hasn’t enjoyed the kicker from a set exposure to bonds like the mixed asset funds. Vanguard also applies a home bias to its LifeStrategy range, which means around 25% of the equity portion of the UK fund range is invested in UK equities. That’s significantly above the market weight, with the UK market now making up just 4% of the MSCI World Index, compared to the 67% made up by the US. Over ten years, this extra allocation to UK equities has weighed down LifeStrategy 100% Equity, and other funds in the IA Global sector, compared to the MSCI World Index, which has been propelled ever higher by the strength of the US stock market. Over the last year the UK stock market has actually fared a lot better, which has led to better performance by LifeStrategy 100% Equity compared to the MSCI World Index, albeit still slightly underperforming.

Over the last year, the tables have been turned on the LifeStrategy range, with most of the mixed asset range appearing in the fourth quartile of their respective sectors. The exception is the LifeStrategy 80% fund, which has still posted outperformance. However, some care needs to be taken when interpreting performance figures for this fund, as its equity allocation sits right at the top end of the maximum permitted for the sector. This means it takes more risk by investing a larger amount in equities than most of the funds in its sector, and so its relative performance will be largely driven by how well stock markets have fared in the period under assessment.

Alternatives to LifeStrategy

The Vanguard LifeStrategy funds are passively managed, which will appeal to many investors, but others may prefer an active manager at the helm, particularly as the pandemic recovery may prompt tighter monetary policy and thereby a sea change in the bond market.

For conservative investors, Personal Assets Trust and Rathbone Total Return offer exposure to a mixed asset portfolio run by an active manager, with a focus on capital preservation. They won’t shoot the lights out when animal spirits are high, but their slow and steady approach will mean a smoother journey than the market can provide. They have a wider toolkit than LifeStrategy funds to navigate markets, making use of other assets like gold and cash in the portfolio. As active funds they do come with a higher annual fee, 0.57% for the Rathbone Total Return fund and 0.73% for Personal Assets Trust, compared to 0.22% per annum for the LifeStrategy range.

The main passive competitor to the Vanguard LifeStrategy range is the BlackRock Consensus range. Rather than taking a fixed allocation to equities and bonds, this fund range instead simply follows the average asset allocation of UK pension funds. Many ‘actively managed’ UK pension funds also take this approach, which does lead to a high amount of herding behaviour in this part of the funds market.

The Consensus fund range was launched in 2012, so we have 9 years of performance data available. The level of equity held in each range doesn’t always match up exactly, but it’s pretty plain to see that LifeStrategy has had the best of it in the mixed asset fund range, which isn’t a surprise seeing as the Consensus funds should broadly track the sectors they sit in. The one exception is the 100% equity category where Consensus just edges it, thanks to a lower exposure to the UK stock market.

Fund 9 year performance
BlackRock Consensus 100 186.0
Vanguard LifeStrategy 100% Equity 180.1
BlackRock Consensus 35 57.8
Vanguard LifeStrategy 20% Equity 56.0
Vanguard LifeStrategy 40% Equity 81.1
BlackRock Consensus 60 69.9
BlackRock Consensus 70 82.4
Vanguard LifeStrategy 60% Equity 110.8
BlackRock Consensus 85 105.2
Vanguard LifeStrategy 80% 143.6


Source: FE Total Return, 13/07/2012 to 23/06/2021

In a quirk of fate, or perhaps a sign of herding in fund pricing, both the Blackrock Consensus and the Vanguard LifeStrategy range are available for an annual fund charge of 0.22%, or 0.21% for some Consensus funds. For the mixed asset fund ranges, these funds are the big players in town in the passive space and so set the bar for pricing, but 0.22% looks decent value. For the 100% equity versions however, investors may be able to shave some of their annual charges by switching to a global index tracker like the Fidelity Index World fund, or the Lyxor Core MSCI World ETF, both of which are available for just 0.12%. Indeed Vanguard itself offers a cheaper global tracker product in the form of the Vanguard FTSE Developed World ETF, which is also available for 0.12% a year.

The relative performance of LifeStrategy and Consensus ranges doesn’t come down to active management decisions that are right or wrong, but rather to the design of the funds. They simply do what they say on the tin, and in some markets conditions that will fare well or badly compared to peers. While the LifeStrategy and Consensus ranges are designed as a one stop shop for investors, they can also be blended with other mixed asset funds to create a portfolio that has a few different approaches to asset allocation, which will perform well at different points in the market cycle. That should help to smooth out volatility in a portfolio without denting long term returns.



This Week’s Most Read

Latest IFA Magazine Podcast Episodes

Keep updated on the most important financial events 

Make sure you are an informed

wealth professional..

Adblock Blocker

We have detected that you are using

adblocking plugin in your browser. 

IFA Magazine