A Compelling Argument for Holding Wellington Fund

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

http://quote.morningstar.com/fund/chart ... %2C0%22%7D

I'm increasingly coming to the conclusion that I should purchase the Wellington Fund and hold it as a core portion of my portfolio. Can someone talk me out of it based on the above? I slice and I dice, and I dare say, I can't forsee that I can beat this kind of performance. How can you build a taxable account around this fund?
travellight
Posts: 2892
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: A Compelling Argument for Holding Wellington Fund

Post by travellight »

I have a fair amount of my 401K in this fund. I think it is a solid choice for a buy and hold.
364
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by livesoft »

I didn't see anything compelling there. For the asset allocation of about 33% to 35% fixed income, I think a slice-and-dice portfolio has done just as well, but with more tax-loss-harvesting opportunities that will lead to lower taxes later on.

Folks around here always write that one should expect their equities in their portfolio to drop by 50% in a severe bear market. That would mean that a fund like Wellington would drop 50% of 65% or about 32%. So how did Wellington do from October 2007 to early March 2009? The chart says it dropped about 32%. That means that Wellington offered nothing that a similarly allocated group of index funds could offer.
Wiki This signature message sponsored by sscritic: Learn to fish.
maddyken
Posts: 74
Joined: Sun Dec 02, 2012 3:49 pm

W

Post by maddyken »

W is too under diversified for my blood.
User avatar
Jerilynn
Posts: 1929
Joined: Tue Sep 06, 2011 12:49 pm
Location: USA, Earth

Re: A Compelling Argument for Holding Wellington Fund

Post by Jerilynn »

mdpsychcrnp wrote:
I'm increasingly coming to the conclusion that I should purchase the Wellington Fund and hold it as a core portion of my portfolio. Can someone talk me out of it based on the above? I slice and I dice, and I dare say, I can't forsee that I can beat this kind of performance. How can you build a taxable account around this fund?
I'm not sure you SHOULD be talked out of it, it's certainly not a "bad" fund, but a couple points.

1. The expense ratio is too high.
2. It's an actively managed fund and those beasties typically under perform passive funds.
3. You are assuming that the return it HAD will be the same as the return it WILL HAVE. That may not be a valid assumption.
4. The bonds it has had a nice run-up the last several years. Probably, won't be true going forward.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

livesoft wrote:I didn't see anything compelling there. For the asset allocation of about 33% to 35% fixed income, I think a slice-and-dice portfolio has done just as well, but with more tax-loss-harvesting opportunities that will lead to lower taxes later on.

Folks around here always write that one should expect their equities in their portfolio to drop by 50% in a severe bear market. That would mean that a fund like Wellington would drop 50% of 65% or about 32%. So how did Wellington do from October 2007 to early March 2009? The chart says it dropped about 32%. That means that Wellington offered nothing that a similarly allocated group of index funds could offer.
So are you saying that the return of this fund is entirely dependent upon its asset allocation and not upon any advantages that active management offer? My general understanding is that the arguments against active management become less apparent in low cost funds such as this. I would own VWENX (Admiral Shares) with an ER of 0.19. Currently my stock allocation is 90% VTI and 10% VEU, with bonds at 40% BND, 40% VCIT, and 20% VWALX (per Rick Ferri's Asset Allocation book). So you are implying that a static allocation (rebalanced yearly) of these funds could out-perform this fund over a similar time period?
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: W

Post by bogleenigma »

maddyken wrote:W is too under diversified for my blood.
Certainly that has been my argument up until this point, but it's hard to accept the gospel of indexing (and thus diversification) hook, line, and sinker when looking at the performance of this fund. It's a pretty hard argument to make against a fund that has this sort of record since 1929.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

Jerilynn:

>1. The expense ratio is too high.
VWENX has an ER of 0.19. Sure, I own my entire portfolio in ETF's with the exception of VWEAX and my ER's are certainly lower than this (though VEU has an ER of 0.18%). I find this to be a hard argument to make.
>2. It's an actively managed fund and those beasties typically under perform passive funds.
Indeed, that's the usual fair argument against actively managed funds. And hence why I became a Boglehead. But if you look at this fund's history since 1929, it's a very hard argument to make that passively managed funds can beat this kind of performance. If you even compare passively managed balanced funds (TR, Lifestrategy, and Balanced) with similar asset allocations, they don't beat Wellington, at least since the inception of those funds (which is, admittedly, fairly recent).

3. You are assuming that the return it HAD will be the same as the return it WILL HAVE. That may not be a valid assumption.

This is a good point and one that I've well considered. However, again, it's hard to argue against a fund that has been successful since 1929. Is it merely chance? Easy to argue over even a 30 year period. The argument becomes increasingly less tenable over an 83 year period.

4. The bonds it has had a nice run-up the last several years. Probably, won't be true going forward.[/quote]

Even if you leave out the last ten years in the comparison, it just appears to me there's something else going on here with this fund. Sometimes, on very rare occasions, it seems, active management wins. Compare VWELX against FPURX.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D
Johm221122
Posts: 6372
Joined: Fri May 13, 2011 6:27 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Johm221122 »

Past performance does not guarantee future performance
john
User avatar
Epsilon Delta
Posts: 8090
Joined: Thu Apr 28, 2011 7:00 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Epsilon Delta »

What are you going to do instead? You can certainly do a lot worse than Wellington; you might be able to do just a little bit better.
User avatar
Jerilynn
Posts: 1929
Joined: Tue Sep 06, 2011 12:49 pm
Location: USA, Earth

Re: A Compelling Argument for Holding Wellington Fund

Post by Jerilynn »

mdpsychcrnp wrote: So are you saying that the return of this fund is entirely dependent upon its asset allocation and not upon any advantages that active management offer?
I'm not Livesoft, but what I am saying is that the FUTURE return of this fund will not be dependent on any advantages that active management offer. If it does better than [pick the appropriate benchmark], it's all luck/random chance.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
User avatar
Jerilynn
Posts: 1929
Joined: Tue Sep 06, 2011 12:49 pm
Location: USA, Earth

Re: A Compelling Argument for Holding Wellington Fund

Post by Jerilynn »

mdpsychcrnp wrote:Jerilynn:

>1. The expense ratio is too high.
VWENX has an ER of 0.19. Sure, I own my entire portfolio in ETF's with the exception of VWEAX and my ER's are certainly lower than this (though VEU has an ER of 0.18%). I find this to be a hard argument to make.
I clicked on the link in the OP and it took me to VWELX, which has a 0.27%. And that's too high, and it seems like you discovered that and decided to use VWENX instead. :)
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
User avatar
Jerilynn
Posts: 1929
Joined: Tue Sep 06, 2011 12:49 pm
Location: USA, Earth

Re: A Compelling Argument for Holding Wellington Fund

Post by Jerilynn »

mdpsychcrnp wrote: However, again, it's hard to argue against a fund that has been successful since 1929.
No, it's really not all that hard. ;)
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
Johm221122
Posts: 6372
Joined: Fri May 13, 2011 6:27 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Johm221122 »

This article posted recently may help with the decision to hold any managed fund
http://m.cbsnews.com/fullstory.rbml?cat ... deofeed=43
Don't confuse strategy and outcome, Wellington is not reckless but is actively managed and can under perform. It is also not as diversified as 3 fund portfolio.
john
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Default User BR »

[quote="mdpsychcrnp"I'm increasingly coming to the conclusion that I should purchase the Wellington Fund [/quote]
I don't use actively-managed funds.


Brian
investor
Posts: 1010
Joined: Mon Feb 19, 2007 9:50 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by investor »

check the monthly Madsinger postings....

investor
Erwin
Posts: 1929
Joined: Fri Apr 27, 2007 11:16 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Erwin »

The standard reasons given here for not investing in this fund are that it is managed, and that is certainly an issue, and that past record is not correlated with future performance, but at the end of the day this fund has had an exemplary performance for many years, not only based on return but also on risk. Further, it is part of Vanguard, an organization with impeccable standards. So, I would say, go for it, and that goes as well for the Wellesley fund. Both are really fine funds.
Erwin
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: A Compelling Argument for Holding Wellington Fund

Post by nisiprius »

There's no compelling argument for not holding it. It's a low-priced, well-managed fund. The general opinion here from the cognoscenti is that outperformance is explained mostly by its asset styles, not by management magic.

Here's the point: you only get the long-term performance of a mutual fund or portfolio if you actually do hold it for the long term. That always means holding it for periods of time when it is not doing well, and those periods can easily be as long as a decade. I feel personally that there is some virtue to staying the course and avoiding fiddling as much as possible. So it makes sense to think carefully before committing and then staying committed.

In the case of the Wellington fund, there's one particular step you should take before jumping in. As it happens, Jack Bogle's latest book, The Clash of the Cultures, devotes a long chapter, Chapter 8, to "The Rise, the Fall, and the Renaissance of Wellington Fund." I suggest you read it, from start to finish. It's a history of the fund from the point of view of someone who was closely associated with it. Naturally, it can't be objective, but he is reasonably hard on himself. The point is that once you get into active management, you can't insulate yourself from paying attention to how the fund is managed. He talks of three distinct eras:

"1929-1966, when "when Wellington first carved out a singular advantage, an advantage that persisted through 1960, only to fall to the very bottom of the pack over the next six years."

The next one deserves highlighting: "1967-1978, beginning when Wellington Management Company merged with a group of aggressive, growth-oriented speculative managers, who moved the Fund to a risk-exposure level far higher than ever before."

Then 1978-2012, when Wellington "returned to its traditional values."

So the problem with any actively managed fund is that when you get a 1967-1978, do you say "this is a time when I ignore the short-term underperformance, hang in there and stay the course," or do you say "the management has changed, it's time to sell the fund," or what? I think it's psychologically easier to stay the course in an index fund, where management is forced to stick to a very specific and objectively defined strategy, than in an actively managed fund.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: A Compelling Argument for Holding Wellington Fund

Post by nisiprius »

P.S. To your growth chart, you really should add two more: Vanguard Balanced Index Fund, because it's the obvious comparison.

And then, just for laughs, Fidelity Puritan Fund, FPURX. I really know nothing about the fund and have never invested in it myself, nor do I ever plan to, but I admit to at least some curiosity about it. I stumbled across it once when I was looking for "funds sorta like Wellington," that is to say, relatively old balanced funds. Puritan isn't as old as Wellington; it "only" goes back to 1947. (However, the mutual fund as we know it was created by the Investment Company Act of 1940, a watershed event. It's not clear to me that the history of mutual funds before 1940 should "count.") I keep hoping someone who knows will say more about it, but it sorta-kinda looks like "Fidelity's Wellington," except that over the life of the fund... well, plot the chart and I think you will see what I mean. It has an 0.59% expense ratio, high by Vanguard standards but not bad for the industry--Morningstar calls it "Fee Level: Low;" and it has $20 billion assets under management, so a fair number of people have voted for it with their dollars; Wellington has $65 but Puritan seems like a pretty heavy hitter. I'm not recommending it, I just keep wondering about it. As you'd expect, Wellington gets mentioned in this forum about a gazillion times as often as Puritan!
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Re: A Compelling Argument for Holding Wellington Fund

Post by Levett »

Far more challenging is your final question: "How can you build a taxable account around this fund?"

For many years, I've owned both Wellington and Wellesley in tax-deferred accounts.

But I'm wary of either fund in taxable, preferring munis and something like Balanced Index.

In my view, one buys a Wellington or Wellesley for the management philosophy (not the manager nor the desire to "outperform").

If the company philosophy is compatible with your comfort zone (financial and behavioral), then you'll not second guess yourself. If the philosophy changes--the company's or yours--then you likely have changes to make.

You are the decider.

Best of luck.

Lev
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: A Compelling Argument for Holding Wellington Fund

Post by nisiprius »

But, Levett, do you really know when and how the management philosophy changes? Statements of what the philosophy is always seem to be vague and pleasant. When new management takes over, if the fund has been doing well they always say they're going to keep running it the same way. It would be interesting to see what communications Wellington's shareholders received when the new team took over in 1967. I doubt they said "we're going to take big risks and swing for the fences." I doubt if they said something like "we're modernizing the tired old-fashioned pokey management style and bringing it up-to-date with the best contemporary thinking." I'll bet it said "Welcome to the new team, it's going to be just like it was and better than it ever was before."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Erwin
Posts: 1929
Joined: Fri Apr 27, 2007 11:16 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Erwin »

Levett wrote:Far more challenging is your final question: "How can you build a taxable account around this fund?"

For many years, I've owned both Wellington and Wellesley in tax-deferred accounts.

But I'm wary of either fund in taxable, preferring munis and something like Balanced Index.

In my view, one buys a Wellington or Wellesley for the management philosophy (not the manager nor the desire to "outperform").

If the company philosophy is compatible with your comfort zone (financial and behavioral), then you'll not second guess yourself. If the philosophy changes--the company's or yours--then you likely have changes to make.

You are the decider.


Very good point! Thank you Lev
By the way I assume what Lev means, right?

Best of luck.

Lev
Erwin
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Re: A Compelling Argument for Holding Wellington Fund

Post by Levett »

Nisi,

I can only do what any sensible Boglehead would do:

1. I visit the Wellington Management website regularly.

2. I read all reports I receive from Wellington Management carefully, paying particular attention to the positions the respective funds have taken.

3. I obviously comb through the prospectus looking for evidence of change.

4. I track the Morningstar Premium reports (M* will always know more than me about what's going on).

5. The one thing I don't do is worry over the day to day, month to month, performance of the funds. That's Wellington Management's job--not mine.

Lev

P.S. I know from your many astute posts that you do not succumb to the following, but I get the sense that many posters do--namely, to think of a fund or ETF (which is a collection of positions) as if it were the equivalent of owning one position, say Apple. I have noticed that those who treat a fund or ETF as if it were the equivalent of holding a single position have a tendency to monitor their holdings much too closely. I like to keep my distance, knowing that I have made a choice, and it's up to me to allow that choice to be managed by a team far deeper and far more experienced than me.
User avatar
SpringMan
Posts: 5422
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Re: A Compelling Argument for Holding Wellington Fund

Post by SpringMan »

I am a fan of both Wellington and Wellesley. They two overlap a lot so it is probably not necessary to hold both. I would pick the one that marches closet to your desired stock/bond ratio, in our case Wellesley. We have close to 85% of our holdings in tax advantaged space so that it is easy to accommodate tax inefficient funds, that is another argument against balance funds. Our Wellesley investment is around 15% of our total. We fill in the missing asset classes with other funds. Our taxable accounts are 100% indexed. Overall we are about 1/2 indexed, it would be much higher percentage if not for investments in Vanguards' actively managed bond funds and Wellesley. I happened to catch the latest Adam Bold Mutual Fund show on the radio. They were singing the praises of James Balanced Golden Rainbow fund (GLRBX). It has an ER over 1%. Just for grins I compared the performance of GLRBX to Wellington and Wellesley. The vanguard funds each had better performance. The only possible issue I can see against the Vanguard funds would be bloat as they have huge assets under management. That has not hurt them yet though the future is unknown.
Best Wishes, SpringMan
ResNullius
Posts: 2091
Joined: Wed Oct 24, 2007 3:22 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by ResNullius »

I think there's a lot of good things to say about making Wellington the core of a retiree's portfolio. On the other hand, I sold all my Wellington some years ago in favor of creating my own balanced fund using short and intermediate term investment grade, and also the SP500 and Total Market. This way I was able to allocate my risk (asset allocation) just the way I wanted, plus be a little more diversified, plus save on expense. That said, I still think Wellington is an excellent fund, but I just don't own it anymore.
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: A Compelling Argument for Holding Wellington Fund

Post by dbr »

My view is that these Vanguard active funds are perfectly fine but that the mistake would be in imagining them to be magic bullets, which they are not. As a matter of basic bias I think they are under-diversified, for what that is worth.

My personal bias is for the transparency and simplicity of holding three or four fund portfolios, or holding total market portfolios and tilting to additional asset classes. Wellington is simple if it is the only holding but not if it is blended with other holdings. The concept of a "core" holding doesn't make sense to me. There is an issue of tax location when holding blended funds.
jtl46
Posts: 64
Joined: Thu Nov 22, 2012 11:10 am

Re: A Compelling Argument for Holding Wellington Fund

Post by jtl46 »

I have held Wellesly for a couple of years and of course over that time it has had excellent results and as you know it is very similar to Wellington except it holds less bonds. I am faced with a similar situation as the OP and that is whether to add more to the fund or go a completely different route. To me it is a concern of the bond holdings. I am leaning toward investment grade bonds and a shorter duration so that would be VFSTX. I don't need the money in VG which only represents 18% of my portfolio and is all in an IRA (the rest is in CD's and MM) but I am 66 and retired so my situation is probably different than the OP. I an considering a combination of TBM, Short term invest. grade bond fund, TSM and/or a dividend fund and perhaps some small percentage of international stocks. I guess Wellington or Wellesly are fine if you like the asset distribution.
John
grayfox
Posts: 5569
Joined: Sat Sep 15, 2007 4:30 am

Re: A Compelling Argument for Holding Wellington Fund

Post by grayfox »

I went to M* and compared Wellington (VWELX), which is 65/35 actively-managed fund, against Balance Index (VBINX), which is 60/40 index fund. For 15-years

...............VBINX......VWELX
RETURN.....5.70.........7.06
SD.............9.99........10.23
SHARPE.....0.35..........0.47

VWELX had higher return, slightly higher volatility and a higher Sharpe ratio, which measures risk-adjusted return

I would say that you got more bang for your buck with Wellington. Here's a chart comparing both since inception of VBINX in 1992. Wellington started up on July 1, 1929.

VBINX vs VWELX

Now I personally don't hold any Wellington because it doesn't match my risk profile. But I do hold their other fund, Wellesley, and I am using it as a benchmark for the rest of my portfolio. The idea is that if I can't improve over Wellesley, why not just put more into Wellesley.
Last edited by grayfox on Mon Dec 03, 2012 11:37 am, edited 1 time in total.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: A Compelling Argument for Holding Wellington Fund

Post by retiredjg »

mdpsychcrnp wrote: How can you build a taxable account around this fund?
This part of your question is not getting a lot of attention.

If you are in a higher tax bracket (you're an M.D., right?) and if you are in the accumulation phase, I don't think putting Wellington into a taxable account is a good idea at all. The bonds are not tax-efficient and the dividend paying stocks won't help any either. Paying taxes on those returns at high rates does not make any sense to me.

On the other hand, if you are no longer working and have dropped to the 15% bracket and actually spending the dividends....I think holding some Wellington in taxable is probably OK. However, bond dividends and unqualified stock dividends usually are taxed at a higher rate than capital gains - you might want to give that some consideration.
User avatar
bertilak
Posts: 10711
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: A Compelling Argument for Holding Wellington Fund

Post by bertilak »

mdpsychcrnp,

I recently changed my six-fund Vanguard portfolio to a two fund portfolio: Wellington Admiral (90%) and REIT Admiral (10%) so I obviously can be expected to argue FOR Wellington as a core position. I only have the REIT because I couldn't bring myself to sell it when I sold all the others. I may still convert it to Wellington.

My decision for the switch to Wellington took all the above positive arguments into consideration, but only as secondary considerations (although make or break considerations when taken in total). My motivation was to simplify my portfolio to something my beneficiary could understand and manage. I can leave very simple instruction; no complex asset allocation and re-balancing schemes.

Before I moved to Wellington my portfolio's overall (weighted) expense ratio was 0.12%. It is now 0.19%. I look at those 7 basis points as the management fee I pay to have someone else manage the AA and re-balancing. It'd be hard get that quality of management for that low rate anywhere else.

One often (too often?) hears "Past performance is not indicative of future performance." I believe that is true in the absolute sense but put less faith in it for relative performance between like-minded investment choices.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
scone
Posts: 1457
Joined: Wed Jul 11, 2012 4:46 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by scone »

I own Wellesley and Wellington, in the 401k and the Roths. I also own Total Bond, Total Stock, and a couple of other things. I can't see any point in being a fanatic about indexing, active/passive management, or even about the ER of any particular fund. It's the overall quality of the fund, and it's total weighted ER that matters to me. So I've got a collection of funds that I think are best of breed, and best for me.

As for a "compelling argument," I can't give you one. It just works for me, but my reasons for liking them might be totally irrelevant to your situation. I think you either like these actively managed (horrors!) balanced funds or you don't. And if you like them, use them, at least in the tax deferred accounts. But asking for a favorable "compelling argument" in a forum dominated by strongly committed passive indexers is likely to get a very predictable result. :wink:
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
jtl46
Posts: 64
Joined: Thu Nov 22, 2012 11:10 am

Re: A Compelling Argument for Holding Wellington Fund

Post by jtl46 »

scone wrote:I own Wellesley and Wellington, in the 401k and the Roths. I also own Total Bond, Total Stock, and a couple of other things. I can't see any point in being a fanatic about indexing, active/passive management, or even about the ER of any particular fund. It's the overall quality of the fund, and it's total weighted ER that matters to me. So I've got a collection of funds that I think are best of breed, and best for me.

As for a "compelling argument," I can't give you one. It just works for me, but my reasons for liking them might be totally irrelevant to your situation. I think you either like these actively managed (horrors!) balanced funds or you don't. And if you like them, use them, at least in the tax deferred accounts. But asking for a favorable "compelling argument" in a forum dominated by strongly committed passive indexers is likely to get a very predictable result. :wink:
Good post.
investor
Posts: 1010
Joined: Mon Feb 19, 2007 9:50 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by investor »

agree good post

investor
gwrvmd
Posts: 820
Joined: Wed Dec 02, 2009 7:34 pm
Location: Calabash NC

Re: A Compelling Argument for Holding Wellington Fund

Post by gwrvmd »

The arguments against holding Wellington Fund as a core asset in a retirement account is an example of " The enemy of a good plan is the pursuit of a perfect plan"....Gordon
Disciple of John Neff
User avatar
Jerilynn
Posts: 1929
Joined: Tue Sep 06, 2011 12:49 pm
Location: USA, Earth

Re: A Compelling Argument for Holding Wellington Fund

Post by Jerilynn »

grayfox wrote:I went to M* and compared Wellington (VWELX), which is 65/35 actively-managed fund, against Balance Index (VBINX), which is 60/40 index fund. For 15-years

...............VBINX......VWELX
RETURN.....5.70.........7.06
SD.............9.99........10.23
SHARPE.....0.35..........0.47

VWELX had higher return, slightly higher volatility and a higher Sharpe ratio, which measures risk-adjusted return
Excellent rational for getting VBINX instead of Wellington now. As both revert back to the mean, the VBINX should out perform.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
User avatar
bertilak
Posts: 10711
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: A Compelling Argument for Holding Wellington Fund

Post by bertilak »

Jerilynn wrote:Excellent rational for getting VBINX instead of Wellington now. As both revert back to the mean, the VBINX should out perform.
Of course they may have *already* reverted to their mean and may continue on that trajectory making Wellington the best choice. Tomorrow's mean may be different from today's or yesterday's.

(Or did I, in my literal mindedness, miss an irony just outside my irony detection range?)
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
White Coat Investor
Posts: 17338
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: A Compelling Argument for Holding Wellington Fund

Post by White Coat Investor »

My own argument against this fund is pretty simple. It's a balanced fund. I don't use them. I guess I could, but it would make my portfolio even more complicated than it is.

But you're right, most of the active vs index arguments are really a low-cost vs high-cost argument. Since this fund has a low cost, it at least has a chance to beat a passive fund, and over the long run should be pretty similar, especially in a tax-protected account.

That said, I fail to see any overwhelming argument that you should use it, just that it isn't a particularly bad decision if you decide you want to.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
rustymutt
Posts: 4001
Joined: Sat Mar 07, 2009 11:03 am

Re: A Compelling Argument for Holding Wellington Fund

Post by rustymutt »

VWELX .27% ER
VTI .06%

I don't see the appeal to Wellington.
Even educators need education. And some can be hard headed to the point of needing time out.
User avatar
bertilak
Posts: 10711
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: A Compelling Argument for Holding Wellington Fund

Post by bertilak »

rustymutt wrote:VWELX .27% ER
VTI .06%

I don't see the appeal to Wellington.
The choice is not between Wellington and VTI. It is between Wellington and a self-managed, diversified, portfolio.

As I mentioned above, in my case that was an ER of 0.12% for my multi-fund portfolio and an ER of 0.19% for Wellington. NOT 0.27% -- if you are putting all your money in a single fund it is much easier to reach Admiral status. You just tacked on an unjustified 8 basis points.

We are now down to a difference of 7 basis points -- less than the 8 basis points you tossed around above!. Hardly anything to get excited over and in my opinion well worth the management it buys, especially if you consider you may otherwise not be able to reach Admiral status when spread across a whole stable full of funds.

Also, VTI is an ETF, not a fund, so there are all the expenses involved in bid/ask spreads. That 7 basis points now looks to be even less of an issue.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: A Compelling Argument for Holding Wellington Fund

Post by pkcrafter »

jtl46 wrote:I have held Wellesly for a couple of years and of course over that time it has had excellent results and as you know it is very similar to Wellington except it holds less bonds. I am faced with a similar situation as the OP and that is whether to add more to the fund or go a completely different route. To me it is a concern of the bond holdings. I am leaning toward investment grade bonds and a shorter duration so that would be VFSTX. I don't need the money in VG which only represents 18% of my portfolio and is all in an IRA (the rest is in CD's and MM) but I am 66 and retired so my situation is probably different than the OP. I an considering a combination of TBM, Short term invest. grade bond fund, TSM and/or a dividend fund and perhaps some small percentage of international stocks. I guess Wellington or Wellesly are fine if you like the asset distribution.
John
Wellesley does have a good performance record, but you are worrying about bond risk and I think investors need to be concerned more with stock risk. Wellesley only holds 64 stocks, so the huge inflows of new money the fund has experienced may cause problems from asset bloat. "If a fund's asset base increases too much, its character necessarily changes.''
Morningstar

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Levett
Posts: 4177
Joined: Fri Feb 23, 2007 1:10 pm
Location: upper Midwest

Re: A Compelling Argument for Holding Wellington Fund

Post by Levett »

Hi Paul,

As I recall, Wellington has previously closed, and I have no doubt Wellesley will close if it becomes necessary.

Wellington Management is accustomed to dealing with Big Bucks--both for its non-VG clients as well as its VG clients.

In my experience, asset-gathering has not been their calling card, nor has Wellington Mgt per se promoted itself in the press.

Further, I believe there's room for honest debate as to what constitutes a properly "diversified" (e.g., number of stocks) equity fund. Of course, neither Wellington nor Wellesley has ever claimed to be a total stock fund. They are what they are.

Lev
Mtn Hiker
Posts: 30
Joined: Thu Aug 19, 2010 7:50 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by Mtn Hiker »

[/quote]

Excellent rational for getting VBINX instead of Wellington now. As both revert back to the mean, the VBINX should out perform.[/quote]

I've heard that. I'm still waiting.
But in reality the funds are not comparable as they invest in entirely different ways. Go with the way you are most comfortable with and you will be much less likely to muck around with it.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: A Compelling Argument for Holding Wellington Fund

Post by pkcrafter »

Lev, I do believe Wellington and many other Vanguard active funds perform very well, but I did provide a cautionary note on Wellesley's asset bloat. Wellesley has been a favorite with the active crowd in recent years and a lot of money has poured in. It is not easy to manage excess cash, so this is a potential problem.

On the positive side, W and W are not managed by a single manager, which sort of blows away the mystique that it takes a great manager to run a great fund. What this really means is the vast majority of active funds underperform because of costs and their own mistakes. I've listed some of the problems active funds can and do run into and I've noted those that may effect Vanguard.

Asset bloat – Nothing kills success like success. Popular funds draw a lot of new money. And ironically, too much success is one of the biggest causes of eventual failure. As the fund’s assets grow it becomes harder and harder for the manager to find good stocks to buy. A fund company with true fiduciary responsibility to its investors will close the fund, but most will just keep taking in the money until performance sinks to the bottom of the list.
Vanguard has not yet closed Wellesley, but I would not be surprised if they did at some point. Asset bloat could effect W and W, mostly Wellesley.

Manager changes – Managers who have put up good numbers and received lots of media attention tend to move on to other, more lucrative positions. It’s worth noting, though, that some very good active funds have multi-managers, which suggests that the company’s underlying philosophy is more important than the manager.
Vanguard has an excellent philosophy and pays attention to fiduciary duty. They have actually changed some managers seamlessly. Kudos.

Fund Purchase- it’s not uncommon for successful smaller fund companies to be bought-up by big firms with mediocre records and high fees. The funds with the good records are heavily advertised, but once the higher fees and new company management interference is in place the outstanding funds from the smaller company lose their luster.
Not a factor.

Style drift - A managed fund that you purchased to cover the small value asset class can change to small blend, mid value or something else. When this happens, your target allocation gets shifted.
With too much cash coming in, style drift is a potential problem.

Objective changes
– Managed funds can decide to change what they are investing in or how they invest, which dismisses the carefully chosen reasons you bought the fund in the first place.
This is a major problem with active funds, but there is no evidence that Vanguard has ever done this.

Internal Pressures – There is great pressure put on fund managers to not underperform their benchmark. The result in some cases is to see a manager just try to mirror their index benchmark rather than chance underperformance. The result is a higher cost index fund, which has no chance of even matching the index after costs. Many fund houses experience internal pressures from the competition, the fund company owners, and the managers themselves. Fund managers are subject to the same behavioral pressures and mistakes as the investors holding the fund, not to mention ego problems.
Vanguard and it's fund managers seem to stay on track, and although internal pressure can be a problem, it does not appear that Vangaurd has any problem.

Much of the difference between Vanguard active funds and the competition is the "at cost" directive. The quest for profit seems to be at the root of almost all of active funds problems. If you could take away the problems you would see better active fund performance, but of course, you can't take away the cost advantage. Thank you John Bogle.



Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

Jerilynn wrote:
mdpsychcrnp wrote:Jerilynn:

>1. The expense ratio is too high.
VWENX has an ER of 0.19. Sure, I own my entire portfolio in ETF's with the exception of VWEAX and my ER's are certainly lower than this (though VEU has an ER of 0.18%). I find this to be a hard argument to make.
I clicked on the link in the OP and it took me to VWELX, which has a 0.27%. And that's too high, and it seems like you discovered that and decided to use VWENX instead. :)
I used VWELX in the original question because you can track VWELX back to 1929. VWENX only goes back a decade. VWENX would be the fund I would be holding in the portfolio as I easily meet the requirements for admiral shares.
Last edited by bogleenigma on Tue Dec 04, 2012 3:15 am, edited 1 time in total.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

Jerilynn wrote:
mdpsychcrnp wrote: However, again, it's hard to argue against a fund that has been successful since 1929.
No, it's really not all that hard. ;)
Is it? Can you demonstrate that you have achieved the same risk-adjusted return of VWELX even over two decades?
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

mpt follower wrote:The standard reasons given here for not investing in this fund are that it is managed, and that is certainly an issue, and that past record is not correlated with future performance, but at the end of the day this fund has had an exemplary performance for many years, not only based on return but also on risk. Further, it is part of Vanguard, an organization with impeccable standards. So, I would say, go for it, and that goes as well for the Wellesley fund. Both are really fine funds.
Agreed. There is something quite compelling about the performance of these two funds. It's that "all weather portfolio" nature that make them so appealing. I'm still not one notch closer to making the plunge with VWELX for my portfolio itself. I have, however, decided that I am going to go with the Ohio 529 plan that offers Wellington as a fund choice for my future progeny. There is much to be said for Wellington's ability to "bounce back" from stock market losses that make it particularly appealing as a choice in a 529, when the time horizon is considerably shorter. Will probably play the fund for the duration of at least the first two years of HS and then switch to Total Bond. There is inherent risk in that, of course, but I obviously have sufficient funds to cover expenses should the need for cash arrive before the fund recovers.
Last edited by bogleenigma on Tue Dec 04, 2012 12:05 am, edited 1 time in total.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

[quote="nisiprius"]There's no compelling argument for not holding it. It's a low-priced, well-managed fund. The general opinion here from the cognoscenti is that outperformance is explained mostly by its asset styles, not by management magic.

Nis:

Noted. I will definately take a look at that chapter.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

> But I'm wary of either fund in taxable, preferring munis and something like Balanced Index.

Lev,

I should have been clearer. I was not specifically inquiring about holding the fund in a taxable account. That's obviously pretty foolish at my income. My concern is my ability to create an asset allocation across my taxable accounts that will "mix" with holding the fund in tax-deferred. My taxable account (in VTI and VEU) has considerably more money than my wife's and my tax deferred accounts combined. I would presume that the answer is to simply allocate my bond ratio to assume that VWELX has a fixed bond ratio of 35% (though it obviously drifts according to management's intentions), and hold my other bond holdings accordingly. This may result in eliminating VCIT, and simply hold BND and VWEAX in their proper allocations. That is, of course, if I do this at all at this stage in my investment journey. It may produce more headaches in terms of asset allocation with a large taxable account then it is worth to me. What is also worth noting is the expected reduction in expense ratios for Vanguard funds with switching to the new index (CRSP). If the ER for BND, VTI, and VEU drop substantially then I doubt, over the long term, that VWENX would offer added benefit at those kind of ER drops. Currently my highest ERs are for VWEAX (0.13%) and VEU (0.18%). Obviously VWEAX is going nowhere because it is not an ETF and it has no real competitors. If VTI drops to compete with SCHB (0.04%), BND to compete with SCHZ (0.05%), and if VEU drops to 0.10% or so (Schwab has no ETF equivalent to VEU or VXUS), it would be difficult, over time, for VWENX to even compete with them (VWENX has a 16% allocation to foreign stocks and bonds). Looking at the performance of VWELX/VWENX, it seems to me that when costs are equivalent or closely so active management (ala Vanguard style) has the ability to beat an indexed approach. How else are we to explain VWELX or even FPURX? But in the end, of course, when costs are accounted for, indexing seems to win the day. This doesn't mean that I wouldn't like to have the reduced volatility of VWELX but over time it would make little difference in my portfolio. That said, however, that reduced volatility would be an asset in my 529 for my progeny and would be worth the extra ER.
Last edited by bogleenigma on Tue Dec 04, 2012 2:48 am, edited 1 time in total.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

retiredjg ,

>If you are in a higher tax bracket (you're an M.D., right?) and if you are in the accumulation phase, I don't think putting Wellington into a taxable account is a good idea at all. The bonds are not tax-efficient and the dividend paying stocks won't help any either. Paying taxes on those returns at high rates does not make any sense to me.

In answer to your first question, no I'm not an MD, but I am in a high tax bracket because I am an NP in a particularly under-served specialty in a particularly under-served area in my specialty therefore my pay scale is consistent with that fact.

My apologies for not being particularly clear in my post. I was not wanting to hold the fund in my taxable account. I was merely giving nod to the fact that my holdings in taxable (all in VEU or VTI) are substantially higher than all of our tax deferred accounts combined. I am merely referring to the difficulty in obtaining a reasonable asset allocation (at least on the bond side) in my tax-deferred accounts to compensate for holding VWELX and having so much VTI and VEU in taxable. No, holding VWELX in taxable is not appropriate for tax efficient fund placement.
Last edited by bogleenigma on Mon Dec 03, 2012 11:51 pm, edited 1 time in total.
Topic Author
bogleenigma
Posts: 241
Joined: Sun Jul 29, 2012 11:19 pm

Re: A Compelling Argument for Holding Wellington Fund

Post by bogleenigma »

EmergDoc:

>My own argument against this fund is pretty simple. It's a balanced fund. I don't use them. I guess I could, but it would make my portfolio even more complicated than it is.

Yes, and it it is this very reason and this reason alone while I will not jump on the Wellington band-wagon. While I would argue that it would reduce my volatility a bit, creating an asset allocation around this fund would be a pain.

>But you're right, most of the active vs index arguments are really a low-cost vs high-cost argument. Since this fund has a low cost, it at least has a chance to beat a passive fund, and over the long run should be pretty similar, especially in a tax-protected account.

This is exactly the point I am trying to make. And if we are to take the last 30 years into account, the fund has a very good chance of beating a purely passive indexing strategy over the long-term. But the past may not repeat itself. But it sure has a better chance of doing so with this fund than most any other within the active fund world.

>That said, I fail to see any overwhelming argument that you should use it, just that it isn't a particularly bad decision if you decide you want to.[/quote]

Duly noted. :)
Post Reply