A common way to judge a product’s performance is to compare it with its benchmark. In a survey it is necessary to use one commonly accepted benchmark for that class of product, rather than the actual benchmarks applicable to each individual product. While not perfect, this provides a practical basis for comparing the competing products’ performances.
The shortcomings of this approach become more obvious when we look at diversified products that invest in multiple asset sectors. That’s because each product has its own strategic asset allocation, so the problem of finding an acceptable common benchmark becomes greater. A further complication for our survey is that we report the performance of diversified products after fees and tax whereas benchmarks are calculated before fees and tax.
In an effort to deal with these matters we are pleased to announce that, from this issue forwards, we are going to use the performance of the Vanguard LifeStrategy suite of diversified PST products as benchmarks for the diversified products in our survey.
The Vanguard products provide a useful yardstick as:
- they adopt a passive style of management, and provide a good proxy for index performance;
- there is a Vanguard product with a strategic asset allocation similar to those of the other products in each classification of our survey; and
- the returns are available on an after fees and tax basis, i.e. the same way we report performance.