Vanguard Australia super fund launches

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asset_chaos
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Vanguard Australia super fund launches

Post by asset_chaos »

I had an email saying Vanguard's Australian super fund has launched. And I must say that for an Australian Boglehead the initial offer seems notably underwhelming.

First an annoying oversight. The link in the email says vanguardsuper.com.au, but that link goes to sorry we couldn't find that page. The real link is www.vanguard.com.au/super/. On the trivial side, but I find is annoying---and bad business---when no one proof reads and checks that kind of thing.

The funds are funds that Vanguard AU has on offer already (not sure about lifecycle): a lifecyle fund that adjusts ratio of stocks and bonds as you age, various diversified funds (High Growth, Ethically Conscious Growth, Growth, Balanced, Conservative) with relatively fixed ratios of stocks and bonds, and the needful component index funds (Australian Shares, International Shares, International Shares (hedged), Australian Fixed Interest, Global Fixed Interest (hedged), Cash) to roll your own global balanced index fund.

So far, so good. Where I'm underwhelmed is the pricing. Except for the cash option, everything costs 56 or 58 basis points a year. And it's not the base cost of the funds; those are 21 bp plus a basis point or three in transaction costs. It's the admin cost, which is 35 bp a year. I suppose if you're quite young and have very little in super, then 0.35% instead of a fixed dollar $80 or $100 per year is better, but if you've got more than, say, $3k in super, then the more traditional fixed dollar admin fee is better.

The offer so far does not make me want to move from Aware super, where my all up cost is more like 33 bp a year. Paying a quarter percentage point more for essentially the same index funds is not appealing to me.

And that may be Vanguard's problem. Existing Bogleheads in Australia have already sought out the low cost index options of super funds that already have scale to spread admin costs over. The APRA data on super funds' default options that are open of the general public says the median fee is 1% (gray circle in graph below). Vanguard is handily undercutting that; moreover, the 0.58% is right there with the lowest cost of the default funds in the APRA database. And now that I look again at the graph below (with detailed description in this thread), it seems clear that they chose to put their initial price at the low cost edge of the black dots of existing super funds.

Switching to Vanguard super lowers super investment cost for most Australians, but the even lower cost pink dot (and even lower) is currently what existing Australian Bogleheads can get without Vanguard AU. The personal message to me is that I will wait and see if Vanguard can generate enough scale to drive that admin cost way down before I will consider switching to Vanguard super.

Image

As image in original thread was deleted by image host vgy because I hadn't logged on to vgy in a year since uploading image, I repost the graph here.
Regards, | | Guy
Lebouff
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Re: Vanguard Australia super fund launches

Post by Lebouff »

Thanks for starting the thread, I wanted to discuss the same thing. Good analysis above and I agree with everything. Overall, it seems that vanguard has targeted younger people with smaller super balances, where their pricing strategy is cheapest. However it stacks up relatively poorly for larger balances. I hope they change their admin fee cap from $2.5k for a $850k balance to somewhere around $300 for a $100k balance. The admin fee should reduce as they pickup scale, but I’m also surprised they haven’t started at a lower level. I’ve heard that the FUM is growing well to start, so hopefully this creates room for fees to fall.

The lifecycle strategy is fine. All seems very simple, you move from vdhg to vdgr to vdba to vdco as you age.
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Re: Vanguard Australia super fund launches

Post by TedSwippet »

Lebouff wrote: Sun Nov 20, 2022 3:25 pm Overall, it seems that vanguard has targeted younger people with smaller super balances, where their pricing strategy is cheapest. However it stacks up relatively poorly for larger balances.
For what it's worth, this is very much along the lines that Vanguard followed -- and in fact still follow -- in the UK.

Vanguard's direct-to-customer retail platform has a 0.15% charge (on top of any fund charges), capped at £375/year, albeit with free trades. It's the cheapest percentage-based platform, clearly cheaper than Vanguard AU's 0.35% for super funds, and good value for lower balances. However, once assets exceed around £80k-£100k, then unless you're a hyperactive trader, several UK flat-fee platforms with modest trading costs can readily beat it.

It's also limited to Vanguard funds only, which can be somewhat limiting since Vanguard's UK/UCITS range has a few odd outages in coverage. Also, a good range of competitor index funds from the likes of iShares, HSBC and Fidelity now charge less than Vanguard funds, for ostensibly the same thing, so while Vanguard funds remain a good choice, they are not always the optimal choice. Platform charges have been set this way since inception in 2017. No signs of any platform fee reductions so far.

Personally, I hold plenty of money in Vanguard funds, but none of it on Vanguard's retail platform.
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asset_chaos
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Re: Vanguard Australia super fund launches

Post by asset_chaos »

Yes, I'm hoping Vanguard super accout fees follows a similar path to the account fees on Vanguard's personal investor account in Australia. It opened, maybe, 3 years ago with an account fee of 20 bp or so (from memory which grows faultier by the day) and an indirect fee on uninvested cash, but with free trades not just for Vanguard ETFs but for anything on the Austraian exchange (ASX). After maybe 18 months, when presumably assets grew enough, the account fee was eliminated and a flat fee for ASX (non-Vanguard) trades instituted; they still have the fee on uninvested cash.

When the super fund service fee goes to 0.35% or $89 per year, whichever is lowest, then I'll reconsider moving super to Vanguard and sugggesting rest of family does the same. Maybe in a year or two.
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Re: Vanguard Australia super fund launches

Post by andrew99999 »

asset_chaos wrote: Sun Nov 20, 2022 5:09 pm but with free trades not just for Vanguard ETFs but for anything on the Australian exchange (ASX).
Vanguard Australia, just as Ted mentioned about Vanguard in the UK, does not offer other funds (i.e. ETFs of other providers), so it isn't anything on the ASX, only individual shares and Vanguard ETFs.

Also, while there is no brokerage or account-keeping fees with Vanguard ETFs, there is both brokerage ($9) and ongoing fees (0.1%) on direct shares, which isn't competitive.
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Re: Vanguard Australia super fund launches

Post by RetiredAU »

Okay, Vanguard Super in AU has failed to impress and that's disappointing to me. I had been hoping to find a new (lower cost) home for my retirement nest-egg. Also, correct me if I'm wrong, but there does not seem to be a Vanguard 'pension' option so there is no periodic payment direct to my bank account like, say, Q Super. And it's quite an expensive place to have cash with a 0.38% fee. I have been holding off placing the cash because bonds had fared badly and I was hedging my bets on what equities markets and Vanguard would do.

Currently, I have 34% still in cash, 27% in diversified bonds, 27% in international equities and 12% in local equity. (The Q Super fees for these individual options are approximately 0.07%, 0.46%, 0.09% and 0.08% respectively.) An additional annual fee of about $900 applies also.

So what would a true Boglehead do? Should I move now to a permanent 60/40 equity/bond Boglehead asset allocation and hold on for the ride, or increment towards that asset allocation over the next year or more? Should I stay with QSuper? I retired a year ago with an old-school defined benefit superannuation cash payment (final salary x multiple).
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Re: Vanguard Australia super fund launches

Post by asset_chaos »

Just on a quick look at QSuper, I would not want to have my bonds in a 60:40 portfolio in a bond fund costing 0.68%. That's unfortunate: the stock funds at QSuper seem to be low cost index funds, while the bond fund is actively managed and expensive. You might want to look at Aware or SunSuper. I think their stock index funds are a little more expensive, but you might more than make up for it with their much less expensive bond index funds. You'd have to run the numbers and see.

If your defined benefit pension is inflation indexed, then you're going to do alright.

Vanguard says their pension product will launch later.
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Re: Vanguard Australia super fund launches

Post by pseudoiterative »

asset_chaos wrote: Wed Nov 16, 2022 6:32 pm Where I'm underwhelmed is the pricing. Except for the cash option, everything costs 56 or 58 basis points a year. And it's not the base cost of the funds; those are 21 bp plus a basis point or three in transaction costs. It's the admin cost, which is 35 bp a year. [...]

The offer so far does not make me want to move from Aware super, where my all up cost is more like 33 bp a year. Paying a quarter percentage point more for essentially the same index funds is not appealing to me.
Thank you for this comparison of Vanguard Australia's super offering vs alternatives.

I've been using vision super's "Balanced low cost" super option. The equity part of the allocation is indexed using a low-carbon exposure tilt, which may or may not be one's cup of tea. The "Balanced low cost offering" has $78 / yr fixed admin fee + 0.14% p.a. asset based admin fee (capped at max of $540 / yr), plus 0.10% p.a. investment fee plus 0.02% p.a. transaction costs. For a $100k super balance the all up cost would be approx 34 bp. For a $500k super balance the all up cost would be 24-25 bp. For very large super balances the cost would approach 12 bp.
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Re: Vanguard Australia super fund launches

Post by RetiredAU »

asset_chaos wrote: Mon Nov 21, 2022 2:27 am You might want to look at Aware or SunSuper. I think their stock index funds are a little more expensive, but you might more than make up for it with their much less expensive bond index funds. You'd have to run the numbers and see.
That is an eye-opener for me! Aware Super is attractive - considerably lower fees than my current fund.

For me, they have admin fees of $52 per year plus 0.15% but capped at $750 which is about $1000 less than I currently pay. Total other fees for the options I am interested in are: Au equities 0.06%, Int'l equities 0.06%, Au bonds 0.07%, Int'l bonds 0.18%, Cash 0.04%. All less than I currently pay and lower than most including Vanguard ETFs which I assume they must be using.

Am I missing something here?
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Re: Vanguard Australia super fund launches

Post by andrew99999 »

RetiredAU wrote: Tue Nov 29, 2022 8:07 pm Am I missing something here?
Some things to note:
1. ESG to some degree, although all funds seem to have that to some degree. I wish someone would do a simple analysis of how much it differs from the index with each superfund
2. No international stocks AUD-hedged
3. No EM
4. No small caps

These may not be an issue for you. They do seem pretty good.
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Re: Vanguard Australia super fund launches

Post by RetiredAU »

Thanks for the reply Andrew, and yes, the absent options are definitely notable. I'm unsure how to resolve that as including them requires a more expensive solution with arguable benefits if my reading on the topic is reliable.

More perplexing is the comparison between this provider's BALANCED and INDEX BALANCED options. The indexed option significantly underperformed the non-indexed over all reported periods. The outperformance margins for the higher-cost option being: 1-year 2.96%, 3-year 2.55%, 5-year 1.44%, 7-year 2.14%, 10-year 1.11%.

That certainly challenges my bias towards low-fee index investing, at least with this provider.
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Re: Vanguard Australia super fund launches

Post by andrew99999 »

RetiredAU wrote: Wed Nov 30, 2022 5:09 pm Thanks for the reply Andrew, and yes, the absent options are definitely notable. I'm unsure how to resolve that as including them requires a more expensive solution with arguable benefits if my reading on the topic is reliable.
If you have your own property and some Aussie shares, you may not need AUD-hedged international shares.
Not everyone is that interested in emerging markets, and even less with small caps, so you could potentially leave it out.
Or you could hold any of those outside super since all your assets make up your single total combined assets/portfolio.
RetiredAU wrote: Wed Nov 30, 2022 5:09 pm More perplexing is the comparison between this provider's BALANCED and INDEX BALANCED options. The indexed option significantly underperformed the non-indexed over all reported periods. The outperformance margins for the higher-cost option being: 1-year 2.96%, 3-year 2.55%, 5-year 1.44%, 7-year 2.14%, 10-year 1.11%.

That certainly challenges my bias towards low-fee index investing, at least with this provider.
Does the (non-indexed) balanced fund hold unlisted assets? It has been in the news several times about these unlisted assets artificially inflated in price not reflecting the actual underlying value. This is because the fund itself values the assets (at their own subjective price), and artificially inflating it makes it appear like they are outperforming. Unbeknownst to most of the population, as they keep shovelling money into super, they are buying it at an inflated price. HostPlus has been the most commented on, but most of the other funds non-indexed options have had the same thing happening. And not just in Australia — I saw at least one thread on bogleheads about it from the US forum.

Initially, some people used that to say that indexing isn't so good after all, but they have tended to be shot down with the above explanation.
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Re: Vanguard Australia super fund launches

Post by RetiredAU »

Yes, unlisted assets! Other explanations are possible too I guess, as I've no doubt you are more aware than I. Dutch Tulips were a great investment for quite a while - until they weren't.

For us, bonds have been quite poor in uncharacteristic synchrony with equities. Perhaps major high-cost infrastructure is an investment ballast similar to bonds, but only time will tell. Perhaps that investment mix committee just lucked-in much of the time in that ten-year period.

I'm sticking with indexing as you suggest and thanks for the reinforcement.
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Re: Vanguard Australia super fund launches

Post by RetiredAU »

Update on this thread.
I've just noticed that the Au-domiciled ETF, Vanguard Global Infrastructure Index Fund, has very significantly outperformed almost all other offerings for the last year. (+8.8% compared to say, Vanguard International Shares Index Fund, at -5.8%).
Given that private equity probably has significant exposure to infrastructure-type assets, it might go some way to explaining the better returns of a balance option containing them.
For what it is worth.
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Re: Vanguard Australia super fund launches

Post by Lebouff »

Well, given I think it will take too long for Vanguard to come into line with the rest of the super funds, I've decided to switch to ART. hard to beat their fees and they offer a solid set of indexed options (can easily replicate Vanguard's offering, while reducing home bias, potentially increasing EM allocation and for lower fees).
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Re: Vanguard Australia super fund launches

Post by Lebouff »

I was with unisuper (defaulted into it from my first job), who are still ok, but they have too many unlisted assets and I don't agree with their active management preference. Feels like a good time to sell out of any unlisted assets before this Blackstone REIT story starts to repeat itself.
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Re: Vanguard Australia super fund launches

Post by pseudoiterative »

For what it's worth, over the last few weeks i'm starting to hear Vanguard Australia super advertised on podcasts.

Vanguard Australia's super offer remains the same as discussed earlier in the thread. it'll be interesting to see if they can make their fees incrementally more attractive if they manage to grow their share of the market.
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Re: Vanguard Australia super fund launches

Post by wackadoo »

I own a core portfolio (outside of super) of VHDG and have recently rolled my super over to VanguardSuper (high growth - 37 year old Australian). I am now slightly concerned that I have significant overlap and my money is not being utilised effectively. Thoughts? Do I revert my core portfolio to something like DHHF (no bonds etc)?
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Re: Vanguard Australia super fund launches

Post by asset_chaos »

Not sure what you mean. VHDG is diversified high growth index fund. You say you have some money invested in VHDG outside of super, and you have your super money invested in what I think is effectively the same fund as VHDG. You have all your money, whether in tax-advantaged or taxable account, invested in the same 90:10 stock:bond balanced fund. Is that right? So I think the overlap is between your taxable and tax-advantaged is 100%, but so what. It makes investing pretty simple to understand, and if 90:10 is the right porfolio for you now, I don't understand the issue that's bothering you.
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Re: Vanguard Australia super fund launches

Post by pseudoiterative »

wackadoo wrote: Wed Mar 01, 2023 9:06 pm I own a core portfolio (outside of super) of VHDG and have recently rolled my super over to VanguardSuper (high growth - 37 year old Australian). I am now slightly concerned that I have significant overlap and my money is not being utilised effectively.
Welcome to the forum!

Maybe another way to think about it could be: hypothetically, suppose you were to liquidate both your core portfolio and all investments in your super, and combine both into one big pile of cash. If you had to choose a portfolio to reinvest the big pile of cash, which one would you pick? If you reckon that VHDG would still be a good choice to invest all of your cash available for investment, with an asset allocation, investment approach and fees that you're comfortable with - then is there a need to change anything?
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