As
I
enter
another
financial
year,
my
investment
strategy
remains
straightforward.
My
ISA
consists
of
just
two
funds:
the
Vanguard
ESG
Global
All
Cap
ETF
(V3AA)
and
the
Vanguard
Global
Aggregate
Bond
UCITS
ETF
(VAGS).
The
past
couple
of
years
have
been
eventful
in
the
investment
world.
2022
presented
significant
challenges
for
global
equity
markets,
with
investors
grappling
with
inflation
spikes,
interest
rate
hikes,
recession
concerns,
and
an
ongoing
energy
crisis.
Against
this
backdrop,
the
Morningstar
Global
Markets
Index
fell
by
nearly
18%,
while
the
Morningstar
Global
Corporate
Bond
Index
retreated
by
17.3%.
Despite
the
turbulence,
I
stayed
the
course,
ignoring
market
fluctuations.
In
2023,
equity
markets
staged
an
impressive
comeback,
with
the
Morningstar
Global
Markets
Index
and
the
Morningstar
US
Large
Cap
Index
surging
by
22.13%
and
27.82%,
respectively,
underscoring
the
unpredictable
nature
of
financial
markets.
Looking
ahead
to
2024
and
2025,
unpredictability
is
the
key
theme.
However,
my
strategy
remains
unchanged
–
maintaining
a
diversified,
low-cost
portfolio
and
avoiding
attempts
to
predict
the
market’s
next
move.
Let’s
dive
deeper
into
my
portfolio
choices,
starting
with
the
equity
component.
Vanguard
ESG
Global
All
Cap
UCITS
ETF
The
Vanguard
ESG
Global
All
Cap
UCITS
ETF
(V3AA)
is
my
choice
for
the
equity
component
of
my
portfolio.
I
generally
avoid
narrow
ESG
portfolios
to
maintain
diversification,
and
this
fund
aligns
with
my
preferences.
It
follows
a
comprehensive
exclusion-based
ESG
process
while
retaining
many
of
the
diversification
benefits
of
an
unscreened
global
all-cap
index.
The
fund
tracks
the
FTSE
Global
All
Cap
Choice
Index,
which
excludes
companies
involved
in
non-renewable
energy,
vice
products,
weapons,
and
those
deriving
revenue
from
oil,
coal,
and
gas.
With
nearly
6,000
stocks
spanning
developed
and
emerging
markets
and
an
ongoing
charge
of
only
0.24%,
it
is
one
of
the
most
cost-effective
options
for
global
large-cap
equity
exposure
in
Europe.
Vanguard
Global
Aggregate
Bond
UCITS
ETF
For
the
fixed
income
portion
of
my
portfolio,
I
rely
on
the
Vanguard
Global
Aggregate
Bond
UCITS
ETF
(VAGS).
This
fund
offers
exposure
to
global
government
and
corporate
bonds
and
could
serve
as
the
sole
fixed
income
component
in
a
retail
portfolio.
With
an
ongoing
charge
of
0.10%,
it
maintains
a
significant
cost
advantage
over
its
peers.
The
ETF
seeks
to
replicate
the
performance
of
the
global
investment-grade
fixed
income
market
by
tracking
the
Bloomberg
Global
Agg
index,
which
is
weighted
by
market
capitalisation.
It
provides
diversification
across
geography,
sector,
maturity,
and
credit
quality,
with
around
10,000
holdings,
and
exclusively
invests
in
investment-grade
bonds.
This
fund
has
been
challenging
to
hold
over
the
past
few
years.
In
2020,
it
landed
in
the
second
quartile
relative
to
its
active
and
passive
Morningstar
Category
peers
but
fell
to
the
third
quartile
in
2021
and
the
bottom
of
the
fourth
quartile
in
2022.
In
2023,
it
rebounded
to
the
second
quartile.
Performance
was
supported
by
declining
government
bond
yields
stemming
from
subsiding
inflation
pressures
and
central
banks
starting
to
signal
that
monetary
tightening
has
likely
come
to
an
end
and
we
could
start
seeing
rate
cuts
in
2024.
The
China
underweight
also
helped.
I’m
glad
I
didn’t
sell
this
position
in
2021
and
2022,
as
I
would
have
crystallised
my
losses.
It
was
particularly
difficult
to
hold
in
2022
when
the
fixed
income
portion
of
my
portfolio
didn’t
provide
the
expected
ballast.
Passive
funds
covering
the
full
maturity
spectrum
typically
incorporate
all
the
downside
and
are
more
vulnerable
to
periods
of
rising
rates
because
of
their
inability
to
shorten
duration.
This
has
been
a
key
drag
on
returns
in
the
past
couple
of
years
relative
to
flexible
approaches
to
the
global
bond
market.
Vanguard
LifeStrategy
Although
no
longer
part
of
my
ISA,
having
sold
the
position
a
few
years
ago,
the
Vanguard
LifeStrategy
series
warrants
mention
for
its
diversification,
cost-effectiveness,
and
strategic
asset
allocation.
The
series’
equity
exposure
starts
at
20%
in
the
most
conservative
portfolio,
increasing
in
20-percentage-point
increments
to
40%,
60%
and
80%,
until
the
most
aggressive
portfolio,
which
allocates
100%
to
equities
and
0%
to
fixed
income.
Vanguard’s
strategic
asset
allocation
committee
reviews
each
portfolio’s
allocations
annually,
leveraging
research
produced
by
the
investment
strategy
group,
whose
thought
leadership
drives
the
decisions
behind
Vanguard’s
investment
strategies.
The
firm’s
research
suggests
that
a
market-cap-weighted
approach
delivers
broad
exposure
and
effectively
diversifies
a
portfolio.
Management
eschews
tactical
tilts,
actively
managed
underlying
funds,
and
niche
asset
classes,
and
instead
sticks
with
inexpensive,
index-based
exposure.
The
series’
straightforward
and
efficient
approach
to
delivering
broad
equity
and
fixed-income
exposure
should
continue
to
serve
investors
well.
These
funds
are
very
competitively
priced
at
0.22%.
The
Ireland-domiciled
UCITS
ETFs
maintain
a
global
focus,
while
the
UK-based
funds
available
on
the
UK
platform
have
a
domestic
bias.
The
UK-based
funds
allocate
approximately
25%
of
the
equity
portion
and
35%
of
the
bond
portion
to
domestic
investments.
Despite
its
strengths,
my
desire
for
a
geographically
unbiased
portfolio
led
me
to
move
on,
reinforcing
my
commitment
to
global
diversification.
Monika
Calay
is
director
of
manager
research
at
Morningstar
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