Blackrock has launched MyMap which is a set of funds to compete with Vanguard's LifeStrategy funds. Blackrock has undercut Vanguards fees, so their offering is cheaper, but what are you buying when you invest in MyMap? Here we compare the two funds to see how they measure up.
MyMap funds are multi asset funds. This means they come as a package of other funds which are diversified across regions and also diversified across asset types. Multi asset funds contain a mixture of shares and bonds and in the case of MyMap also commodities and real estate. LifeStrategy funds only invest in shares and bonds and avoid commodities and real estate.
There are four MyMap funds to choose from: MyMap 3, MyMap 4, MyMap 5 and MyMap 6.
The funds are in ascending order of risk with 3 the least risky and a 64% / 34% split between bonds and stocks (and 2% in "alternatives"), and MyMap 6 the most risky with a 18% / 82% split. However, the precise allocations will almost certainly change over time because these are actively managed funds. Each fund has a risk target (or "volatility target" in the table) which gives a rough idea of how much the fund price will vary in a typical year. The more variation the greater the risk and the greater the potential reward for the fund over the long term.
LifeStrategy funds are much easier to understand because they're simply graded by the amount of equity they contain: 20%, 40%, 60%, 80% and 100%. I know from experience that people tend to glaze over when I start talking excitedly about volatility. The fact that MyMap's volatility and contents change over time makes them more complicated and that will make them more difficult to explain and market.
Blackrock's literature says the funds are:
Actively managed with the aim of delivering a total return, while maintaining a pre-defined risk profile as measured by the Fund’s annualised volatility over a 5-year period.
Taking this apart (and translating) here is what it means:
The fee for MyMap funds is 0.17% of the invested amount per year which is clearly aimed at undercutting Vanguard's LifeStrategy fee of 0.22%.
For example, if you invest £10,000 LifeStrategy will cost £22 per year versus £17 for MyMap. If you have £100,000 to invest these start to become significantly different in absolute terms (£220 for LifeStrategy, £170 for MyMap).
The fee difference of 0.05% is small enough that other considerations will probably determine whether MyMap wins the war for cheap multi asset funds.
The reason why the funds are so cheap is that they are built out of cheap Blackrock funds, such as its iShares ETFs, just as Vanguard LifeStrategy funds are built on cheap Vanguard funds.
A multi asset fund price war is great for UK investors because firstly it shows that UK investors are becoming more aware of fees and secondly fund managers are responding by lowering those fees. Hopefully, this should sweep away all those underperforming 1% or higher fee active funds that litter portfolios.
What really sets MyMap apart from LifeStrategy is that it is actively managed. That means humans (usually men, usually wearing suits) decide what to buy on your behalf. The managers are Rafael Iborra and John Wang. I would tell you more about them but Blackrock has no details on their website so we don't really know anything about their track record or their approach to investment.
However, we do know that the focus of the funds will be on achieving the best asset allocation. Asset allocation how much money is put in each asset type: shares, bonds, real estate and commodities. And it's clear that the fund managers will be able to draw on the huge intellectual resources of Blackrock to try and get this right. They say:
The key driver of returns within each fund is asset-allocation, this is the decision making process which drives the investments underlying the top level split between stocks and bonds. We are able to call upon the deep level of expertise within BlackRock as part of our research process to help determine the best asset class split for the market environment.
LifeStrategy funds have a fixed allocation based on the size of each market with a domestic twist. In some sense this market size weighting is the most neutral approach to asset allocation, and very similar to the way in which major stock indices are constructed. The domestic twist for the UK version of LifeStrategy funds is that they have a triple overweighting of UK equity and bond markets.
There is some intervention because the LifeStrategy funds are reviewed each year by an investment committee, but you will see very few changes. For example, here are the contents of the LifeStrategy 60% fund.
In contrast MyMap can only give a rough idea of what its allocations will be, as these will vary over time thanks to its dynamic asset allocation. Note the +/- symbols highlighting this variability.
So the key question is whether Blackrock's fund managers can deliver consistently good returns that would be better than a simple, equivalent global equity / global bond fund, like a 60/40 fund or a LifeStrategy fund.
Markets are unpredictable and so are active funds. The statistics on active management are simply atrocious and size (Blackrock manages over $6 trillion) and resources (about 15,000 employees in 30 countries) are no guarantee that Blackrock will be able to outperform a simpler alternative like LifeStrategy.
This isn't Blackrock's first offering to compete with LifeStrategy. Blackrock's Consensus multi asset funds have been around since 2005, six years longer than LifeStrategy funds which were launched in 2011. Consensus funds never got the same traction as LifeStrategy. The approach of Consensus funds is similar to MyMap, with active management by the Index Asset Allocation team within the BlackRock’s ETF and Index Investments (EII) Group. The Consensus range is also sorted by risk (Consensus 35, Consensus 60, Consensus 70, Consensus 85 and Consensus 100). The number represented the maximum equity allocation e.g. Consensus 60 would invest at most 60% of its funds in equity. MyMap seems to be a re-branding of Consensus with a lower price tag.
It's simply too soon to tell how MyMap will compare with LifeStrategy. These comparisons will depend on performance. It will be interesting to see whether the modestly lower fees from MyMap will be sufficient to draw capital away from LifeStrategy.
The low fees are great and it's refreshing to get a new multi asset fund. However, MyMap funds are a bit of a gamble given that their active management approach is untested and the fund has no track record. It might be best to wait and see how well the fund performs over the next few years before jumping in.
LifeStrategy funds are the benchmark for all multi asset funds and their low fees are just part of their appeal. LifeStrategy funds are transparent and easily understood. While their fixed allocation is simple these funds have performed very well since inception in 2011. LifeStrategy funds are difficult to beat.
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