by Dan Wiener | November 7, 2013 9:00 am
One of the entire mutual fund industry’s original balanced funds is Vanguard Wellington Fund (VWELX). Since the inception of Vanguard Wellington in July 1929, balanced funds have held out the promise of strong relative returns in good and bad markets by focusing on one very important investment discipline: Diversification. For all the fancy-schmancy options that the mutual fund industry likes to throw at investors today, the basic strength of a good balanced fund is a commitment to invest in both stocks and bonds and, one would hope, to continually rebalance that allocation back toward the parameters set out in the fund’s prospectus as cash flows and market action allow.
Vanguard Wellington is run by a pair of Wellington Management veterans in a very steady fashion. John Keogh does double duty, managing the bond portion here and for Vanguard Wellesley Income Fund (VWINX), this fund’s more staid partner.
But that’s where the similarities end. Vanguard Wellington and Vanguard Wellesley Income are the yin and yang of Vanguard’s balanced fund group. Having a smaller commitment to bonds than its younger sibling, Wellington has generated better returns over time. Of course, 2008 threw everyone off course.
Because Vanguard Wellington does not have as great an income objective to satisfy as Wellesley Income, equity manager Ed Bousa can cast a wider net in the search for securities that can make his portion of the portfolio perform. For instance, the fund is heaviest in financial, health care and tech stocks. And for such a large fund, buying just 100 or so stocks means Bousa is giving shareholders his best ideas, in fairly undiluted fashion.
Like Wellesley Income, Wellington’s mandate for the income portion of its portfolio was changed in 2000 to reduce the fund’s interest-rate risk. Its bond holdings are now measured against an intermediate-term, rather than a long-term, benchmark.
Investors have been able to keep a lot more of what they earn in this fund after taxes than they have from Wellesley. So if you’re in a high-income tax bracket, this fund looks even more appealing, assuming you don’t want to balance your holdings between stock funds and municipal bond funds. Oh, and the fund has put Balanced Index (VBINX), with its comparable asset weighting, to shame in the performance derby. Wellington has returned 8.4% a year over the past 10 years, outpacing Balanced Index’s 7.0% a year return.
In February 2013, the Wellington fund was closed to new accounts coming from financial advisers and institutions — leaving it open to retail investors like you and me.
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.
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