Managed Funds The Vanguard Managed Fund Thread

I decided to kick off this thread as an alternative to LICs and ETFs.
Managed Funds are not a big part of discussion on the forum and I would like to see them compared with LICs and ETFs.

For a beginner transitioning out of real estate and into an income stream these may prove to be a viable alternative. They have a Balanced a High Growth option with give a premix of local, international and fixed income assets.
At a wholesale level, say if you were selling real estate to get into one of these funds they offer a cost effective stress free route.

 

Until very recently managed funds have been at distinct disadvantage from a tax standpoint in comparison to LICs and ETFs. Basically the fund structure lead to equal distribution of CG in the event of redemptions ; so you could be liable for CGT on CG that you personally didn’t experience (!) and much higher distributions generally which resulted in lower levels of retained capital to compound free of tax....even with index vehicles, when compared to their listed counterparts.

The test here is really around how the new AMIT scheme which Vanguard and many others implemented on 1 July works. The “attribution” scheme should in theory largely close the gap in tax effects between unlisted and listed vehicles. I’d be watching the distribution statements for FY18 very carefully. If the scheme works as promised then these vehicles (wholesale class) either the multi asset or single asset types become a very attractive choice for many as they will be cost competitive with ETFs and provide some other benefits ; both behavioral and operational (auto rebalance in the case of multi asset vehicles).

 

Agreed, it will be very interesting.

Their High Growth for the last three years results are
Year. Growth. Div.
2017 2.09 9.29
2016 -3.56 6.38
2015 9.03 4.6

with results like these and the safety/diversification it offers the big LICs look slightly less attractive.

The LICs win on fees with VG at .29. The LICs also win on Franking which is quite low with VG.

 

Those results are unimpressive when you consider what they represent. The “dividend” is very large capital return due to fund turnover. The total return is higher than the Australian LICs due to significant US market exposure (approx 30%+ based on current asset allocation of the high growth fund)

I’d also caution against using 3 year performance data to draw any useful conclusions.

 

In regards to the bond allocation of a portfolio with Equity and Bond ETF’S how exactly does it work if you bought a Gov Bond ETF today and next month interest rates went up, meaning any Gov Bond ETF you own became worth less. Ian this correct with Bond ETF’s? Is the etf structures the same Way as traditional Gov bonds? Or Is a Bond etf solely worth what the market will pay like any other share? Supply and demand etc. and it just means your dividend or fixed income just became more of rates rose?

 

ETFs just collect the underlying assets per a formula. So price will be dictated by the underlying investment's price movements. Demand for the ETF doesn't matter directly as it is open ended. The ETF does need to hold the underlying asset so sell offs and purchases do influence the underlying demand.

My understanding anyway.

Let's not side track this thread too much before it finishes it's first page though.

 

I feel that the VG managed fund provides an easy way of investing if you wish to do so regularly (in instalments).

Also, it can provide a distance from the investment that can help remove emotion. Emotion can be a dangerous thing when investing.

 

Thanks for that info. I would never have known as the web page clearly labels it as a dividend. I always assumed a dividend was from earnings.
II Falco how did you find out the dividend was partly a return of capital.

 

I'm a big fan of the regular b pay into Vanguard funds. The website is easy to navigate and fees are acceptable.

 

Not so ; https://api.vanguard.com/rs/gre/gls/stable/documents/8469/au

Funds unlike companies cannot pay a dividend only a distribution.

If you want to check quality of distributions (ie how much is pass through dividend and how much is long term / short term capital gain) you check the distribution statements

 

I think that for many the behavioral aspect you describe is way more important than finding the ultimate vehicle and they would do far better not having a brokerage account and going this route.

 

I was thinking about this a bit more. When I was quite young I had managed funds but still did some stupid things. It just took more paperwork and time to do it compared to having a brokerage account.

I’m starting to wonder if it’s a personality trait and depends also on one’s level of interest in investing. A greater interest in investing seems to be a negative, we pay too much attention to what is going on. The more successful investors in managed funds appear to be those that have little interest in such things. They’re either investing regularly through Super or something their financial planner has put them into and just couldn’t be bothered checking their fund statements. Investing is just something they feel has to be done but otherwise they don’t want to know about it. Ignorance is bliss.

 

Is there anyway to change between retail and wholesale once the balance is sufficient (for fee reduction) without a capital gains event?

I have a friend starting with a high growth retail fund. Will be some time before they have a balance for wholesale. They just wanted a set and forget solution and weren't interested in actually having to do anything after setup, not a bad attitude really.

 

I don’t think CGT can be avoided. That’s why it’s best if one can find $100k to start off with the wholesale funds.

 

Didn't think so either, I think a lot of very little though so I wouldn't be surprised if a smart type here had a solution. They are just starting with the minimum balance I believe. Fees reduce somewhat with balance at least.

Great thread idea BTW. Guessing it wouldn't be counter productive adding non Vanguard fund discussion here despite the thread title? Less off topic than usual ...

 

I stand to be corrected on this but I understand the managers can only take their fees from income not from capital gains or franking credits which is why some funds distribution statements show the franking may be greater than the usual 30%.

 

Call vanguard and they will give you the cheaper management rate (well they did to about 3 blokes I know).

It is an incremental rate and last time I saw it was 0.74% on the first $50k

 

Minimum Balance for Wholesale Vanguard Funds.

I’ve often found it interesting over the years that a number of investors have stated that they didn’t have $100k to get into Wholesale funds yet they would borrow hundreds of thousands of dollars or even millions of dollars to invest in property.

I note that NAB’s Equity Builder product with NO MARGIN CALL includes Vanguards Wholesale Funds as approved investments. So another way of finding $100k to go the wholesale route.

NAB Equity Builder

Not licensed to give advice.

 

There are a number of other attractive options associated with investing in Vanguard wholesale (as opposed to retail) funds other than just fees. Call them to find out the differences.

 

I got into Vanguard's wholesale funds with $100k. Though I did the maths and knew ETFs would be better over the long run if I did quarterly investments, I couldn't trust myself to actually make the additional investment because I'd probably second-guess the state of the market.

I absolutely love the ability to bpay a set amount weekly. Set and forget. Also I get a managed fund statement at the end of the year which is a bonus for me, less to do at tax time