Livewire article - VG1 - Ouch!

Hi everyone, Chris Brycki has provided the response below on his commentary on VG1's performance:

"VG1 invests into a concentrated portfolio of global shares. It had a 30% peak to trough drawdown between May 2019 to July 2020 which is large for a long/short portfolio able to hold cash and take short positions. By comparison, the ‘long only’ Global 100 ETF (IOO) had a smaller 27% peak to trough drawdown in 2019-2020.

Since listing in October 2017, VG1 is up 16% ex distributions ($2 to $2.33). If you instead bought the Global 100 ETF (IOO) in October 2017 you’d be up 60% ex distributions ($45.05 to $72.42). Over 3 years to 30 June and including distributions VG1 has returned 4.32% p.a. vs IOO which has returned 17.05% p.a.

Investors should be aware that the fund does not benchmark its performance for the purpose of fees, so performance fees will apply to any positive performance, not just performance beyond a benchmark which is the more common approach. This means that the fund collects performance fees as long as the market goes up, and regardless of any real ‘alpha’ generated from manager skill.

In summary, I wouldn’t invest in a global equity fund that has deeper drawdowns, higher concentration risk, higher fees with zero performance fee benchmark and lower returns than just owning the largest 100 companies in the world in a transparent ETF wrapper. Given the drag of an unconstrained performance fee into perpetuity, I’m surprised it doesn’t trade at a deeper discount to NTA!"