Vanguard LifeStrategy 40% Equity Income (GBP)

Vanguard LifeStrategy funds don't have an explicit benchmark that they aim to either track or outperform. Their goal is to maintain the various splits between shares and bonds and ensure that those are kept too tightly. The funds with the most investments in shares may perform best as global stock markets perform strongly over this time. The funds with more in bonds may not grow as much, but they serve their purpose of reducing volatility and falling less when markets are rocky. We wouldn't expect the funds with more invested in shares to hold up so well when markets fall.

Tracker funds are one of the simplest ways to invest. They aim to match the performance of an index, rather than beat it. They usually do this by investing in every company in the index. This means they don't need analysts to research individual companies, which keeps costs to a minimum. If the fund's costs are low, it's likely to track the index more closely.

Each LifeStrategy fund is made up of several passive funds. The asset allocation of the underlying funds is decided by the internal committee and the Equity Investment Group ensure it's maintained. The team has controls in place to keep the funds close to their benchmarks, including ensuring the right amount is invested in each stock or bond. There are five LifeStrategy funds, ranging from 20% shares (equities) up to 100%. A higher allocation in shares will increase risk, as they're subject to more extreme price movements than bonds. Vanguard's global CIO (Chief Investment Officer) chairs a committee that reviews the funds' allocation to different markets annually and meet four times a year to discuss any trends, issues or concerns. The funds also invest into emerging markets. These companies have greater potential for growth over the long term but can increase the risk of the funds. Global bonds' price movements and income can fluctuate alongside foreign currency movements, adding an extra layer of risk to UK investors. To tackle this issue, the team use hedging to convert these bonds back to sterling. This involves using derivatives to offset some of the volatility of currency price movements, which adds risk when used. The process allows the bond portion of the funds some stability during more turbulent markets. Vanguard will also lend some of their investments in the underlying funds out to other providers in order to increase returns which can reduce their costs for investors, though this adds risk.