LifeGuide Portfolio Enhancements and changes to our Blended Portfolios

Posted at 4th April 2018

Today, we will be reviewing our fourth investment principle and the enhancements that we have made to LifeGuide InSight’s Blended Portfolios.  In summary, we have added three new Vanguard funds and converted our American Funds positions to new lower-cost shares.

 

LifeGuide InSight Investment Principle #4

One of the components of our investment philosophy at LifeGuide is expressed through our InSight Investing Principle #4: “Employ active management only where it is likely to add value.” Many studies have shown that it is difficult to find a money manager who consistently delivers risk and fee adjusted returns that are superior to the market over the long term. Out-performing becomes especially difficult when markets are highly efficient- where bargains are hard to find. In these markets, “buying the market” through low cost, passively managed funds usually delivers better results.  We are currently utilizing passive funds in our blended portfolios for the fixed income and real estate allocations.

In some markets, it can pay to use top tier, active managers, to find and take advantage of undervalued investment opportunities. LifeGuide InSight’s Blended Portfolios seek to utilize the strengths of both active and passive management. Investors only pay for active management where it has the most opportunity to be beneficial.

We currently utilize active management for stock funds in our Blended Portfolio. We believe that there are opportunities for stock investments to outperform the market on a risk and fee adjusted basis.  We have been utilizing American Funds since the inception of our InSight portfolios and have recently integrated Vanguard to our fund lineup.       

 

American Funds Enhancements

The primary way that we have implemented active stock management is through American Funds. American Funds has a proven track record and exhibits several qualities that we want to see in fund managers such as strong long-term track record, high manager ownership, low fees, and manager compensation aligned with their investors.  These qualities can help their outperformance persist over long time periods. One of the recent enhancements that we made in regards to American Funds was switching to a different, lower cost, share class (F3) to reduce your total cost. We were the first firm in the region to begin using the new share class which required obtaining special permission from TD Ameritrade. TD Ameritrade informed us that by switching to the new share class, they might have to increase their cost to LifeGuide.  We decided to still move forward with the changes since it represents a cost reduction to our clients with the blended portfolio.  LifeGuide will absorb any additional costs that TD charges related to this change.   

Another change we made to our American Funds holdings is the use of their growth and global growth portfolio funds. By utilizing the American Funds Portfolios, we can increase diversification, better leverage American Funds active management process, and achieve a more precise allocation.

 

The Addition of Vanguard

Market conditions over the last several years have favored American Funds’ strengths.  This, in part, led us to feel that it was an opportune time to increase stock fund manager diversity by introducing a select number of Vanguard’s actively managed stock funds. While Vanguard is more widely known for their extremely low-cost passive index funds, they have also been managing stocks actively since their inception over 40 years ago. In the stock portion of the blended portfolio, 65% is now invested in American Funds’ funds and 35% in Vanguard’s funds. The Vanguard funds we have selected provide the fund managers the freedom to adjust between stock sectors when they identify opportunities.  Our fund selection will also give more of a value and small company tilt to the overall portfolio.  Similar to the best of breed methodology employed by the Yale endowment, Vanguard leverages outside managers who specialize in security selection in specific sectors.    

A recent article published by Barron’s after we implemented the portfolio changes to include Vanguard’s funds validates our decision. In the article, Vanguard came out as the top-ranked fund family for both the five and ten year time periods.  We stress “after” because we did not pick Vanguard simply because they were on top.  We picked them because their process aligned with our selection criteria and investing philosophy. Simply picking yesterday’s winners usually does not produce a good result since the vast majority of managers do not have persistence.  

 

We’re excited about these recent portfolio enhancements and are always striving to improve our models to serve you better.

 

Our final update in our investment series will discuss the changes that we have made to our passive portfolios.

      

LifeGuide Financial Advisors, LLC is a registered investment advisor. Information about funds is for general information. Nothing in this post should be considered specific investment advice. Asset allocation may vary by the client and depends on objectives and tolerance for risk. Funds, like any other type of security, may be subject to the volatility of financial markets and additional risks associated with investing in fund securities. Please see the prospectus for the mentioned funds for further information and other risk considerations. Upon request, LifeGuide will assist clients and prospective clients in obtaining fund prospectuses.