Blackrock rival to Lifestrategy prompts split views on static allocation

ETF giant undercuts Vanguard despite going active on asset allocation

Blackrock

A Blackrock portfolio range to rival Vanguard Lifestrategy has prompted split views over how active intermediaries want their low-cost multi-asset portfolios.

The $6.5trn (£5.2trn) asset manager this week unveiled MyMaps – four sterling-denominated portfolios made up of iShares ETFs in bonds, equities and alternatives, such as gold and property.

Despite being actively managed by the Blackrock multi-asset team, the range undercuts the Vanguard Lifestrategy range, which has a static allocation split between equities and bonds, ranging from a 20% equity allocation to 100% depending on risk appetite. Blackrock MyMaps costs 0.17% whereas Vanguard Lifestrategy is 0.22%.

Blackrock MyMap range asset allocation

MyMap3MyMap4MyMap5MyMap6
Volatility bands3-6%6-9%8-11%10-15%
Bonds64%46%33%18%
Stocks34%52%67%82%
Alternative2%2%0%0%

Blackrock said in its press release announcing the range that it would be available to retail investors via both fund platforms and advisers. In the release, head of iShares UK intermediary sales Pollyanna Harper described the “simple, accessible” range as a way for individual investors to worry about “where” they want to get to while handing over “how” to get there to Blackrock.

Direct competitor with Lifestrategy

Morningstar senior manager research analyst Rajesh Yadav, who focuses on multi-asset funds, says Blackrock has designed MyMaps to compete directly with Lifestrategy. Both ranges provide a “turnkey” portfolio solution and address a broad spectrum of risk tolerance, Yadav says.

BMO Gam has also launched the Universal MAP range under Paul Niven, which Yadav says is another low-cost multi-asset competitor. The range uses mostly internal active managers at BMO and selective passives albeit with an ongoing charges figure of 0.29%.

Vanguard told Portfolio Adviser it would not specifically adjust pricing on the Lifestrategy range in response to the Blackrock launch because it does not limit fee changes to one client group or product type. A spokesperson says: “As we grow, economies of scale are passed back to investors through reducing fees or reinvested in the business. In the case of the Lifestrategy range, fees have been reduced three times since launch as assets have grown.”

MyMaps asset allocation more nimble

The Blackrock range may be more flexible in the face of a changing macro environment, such as tightening monetary policy or more volatile global stock markets, says Gbi2 managing director Graham Bentley.

“At some point when the markets stop being supported by central banks and we go back to normal, free market behaviour, volatility may very well become more important to customers when they start to see slightly more volatility than they had planned. Things like Vanguard, which have a static equity content, will almost certainly become more volatile as a result.”

Blackrock MyMaps is also able to be more nimble on interest rate sensitivity than Lifestrategy. Last year, Portfolio Adviser  highlighted that duration had soared upwards of nine years on Vanguard Lifestrategy as governments and corporates loaded up on long-dated cheap debt.

Blackrock MyMaps duration

MyMap3 MyMap4 MyMap5 MyMap6 
Portfolio model duration2.862.552.091.84
Fixed income weight64.0%46.0%33.0%18.0%
Fixed income sleeve duration4.475.546.3310.22

Vanguard wins fans with static allocation

However, a number of advisers discussing the Blackrock launch on Twitter indicated they still preferred the static allocation of Lifestrategy. Balance Wealth Planning managing director Rebecca Aldridge says Blackrock’s variable asset allocation does not fit with her firm’s investment philosophy.

Aldridge tells Portfolio Adviser there is room for a new entrant to the market to compete with Lifestrategy “provided it operates in the same simple, strategic way and with competitive costs”.

“What many planners like about the Vanguard Lifestrategy range of portfolios is that it is static in that respect so you know exactly what you are getting and that it will stay that way long term.

“There are various other multi-asset or multi index funds which look similar from the outside but that then have a good degree of manager discretion which actually doesn’t help us because the fund is ever changing.”

Other financial planners echoed Aldridge’s comments arguing the volatility overlay would drive “tinkering”.

Vanguard said it stands by its previously stated view that it is doubtful tactical asset allocation decisions can deliver superior results for savers.

Shortcomings in Lifestrategy

However, AJ Bell Investments managing director Kevin Doran sees four shortcomings in the Vanguard Lifestrategy range: it’s fettered, limited to bond and equities, doesn’t take risk profiles into account and takes a passive approach to bonds, which could see cautious investors lose capital as interest rates rise.

Blackrock MyMaps would address the latter three issues but like Lifestrategy is a fettered fund-of-funds products, albeit with a wider product range to select from than Vanguard.

iShares is widely represented in the AJ Bell passive managed portfolio service but there are still areas of weakness within its range, Doran says. For example, AJ Bell uses X-trackers over iShares for several sector-focused equity allocations, such as healthcare or consumer staples, and its UK gilts ETFs have traditionally also been expensive.

Rival ETF providers offer a wider range of fixed income products in differing maturity buckets, particularly in corporate bonds, says AJ Bell passives manager Terry McGivern. The platform’s passive MPS range therefore uses SPDR for its short duration allocation to US High Yield debt.

Doran also highlights that while MyMaps invests in a wider range of asset classes than bonds and equities, its alternatives exposure is no more than 2%.

Multi-asset funds suitable for beginners

D2C platform Interactive Investor lists the Vanguard Lifestrategy 20% Equity, 60% Equity and 80% Equity funds as the only three products in its “quick start” guide to help savers get started in investing.

II investment analyst Dzmitry Lipski welcomed the Blackrock MyMaps launch for a similar type of investor. “Consumers are not lacking in choice – there is a dizzying amount of choice already. What they are lacking is in help getting started, and this is where this new launch is particularly welcome,” Lipski says.

His only hesitation was the messaging as the active approach to passive could confuse people who are new to investing. “The Blackrock launch looks interesting from a cost perspective, but the proof will be in the pudding and we will keep an open mind. We welcome any development that helps investors get started.”

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