Wellington/Wellesley--response to tapering

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scratchy1
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Wellington/Wellesley--response to tapering

Post by scratchy1 »

New to the board and sorry if this is posted in the wrong forum. I have a fair amount of Wellington and Wellesley (more of the former) in my 401(k). I'm worried about the effects on the bond market if and when tapering begins. Because of the size of these two funds, it seems to me they may have a hard time adjusting portfolios in response. Maybe they won't do much of that because of a more long-term and diverse approach, but I'm afraid I'm not knowledgeable about how the managers might be expected to respond. I'm not really looking for advice on portfolio adjustments--just more of a sense of how the managers might respond to tapering.
billyt
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Re: Wellington/Wellesley--response to tapering

Post by billyt »

The markets have already responded to the impending tapering. How did Wellington and Wellesley do?
Dandy
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Re: Wellington/Wellesley--response to tapering

Post by Dandy »

to a large extent the funds are limited by the strategy the have in their prospectus. If they have a range of bond vs equity allocation options and have a range of duration and quality of the bonds they hold there options are somewhat constrained.

Most funds have an emergency provision that they can temporarily alter their "normal" allocations -- I doubt that would apply to tapering impact.
countdown
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Re: Wellington/Wellesley--response to tapering

Post by countdown »

I too have a good portion of retirement funds in Wellington and less in Wellesley, in addition to my index funds.
I specifically have the W/W funds because of their active management at index fund e/r. So, I'm trusting their expertise and response, if any, to tapering. I guess I'm a hybrid boglehead/indexer.

I'm not as knowledgeable as most on this board about these issues either.
I simply figure W/W active, in addition to short-term treasury, will smooth the ride.
Levett
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Re: Wellington/Wellesley--response to tapering

Post by Levett »

"but I'm afraid I'm not knowledgeable about how the managers might be expected to respond. I'm not really looking for advice on portfolio adjustments--just more of a sense of how the managers might respond to tapering."

Wait and watch.

Lev

P.S. Tapering has been the subject of lengthy discussion for a number of months.
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racy
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Re: Wellington/Wellesley--response to tapering

Post by racy »

Here's what the managers say, from the statutory prospectus:
"Wellington Management selects investment-grade bonds that it believes will generate
a reasonable and sustainable level of current income. These may include short-,
intermediate-, and long-term corporate, U.S. Treasury, government agency, and asset-
backed bonds, as well as mortgage-backed securities. The bonds are bought and sold
according to the advisor’s judgment about bond issuers and the general direction of
interest rates, within the context of the economy in general. Although the Fund does
not have specific maturity guidelines, the average duration of the Fund’s bond portfolio
as of September 30, 2012, was 6.6 years".
billyt
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Re: Wellington/Wellesley--response to tapering

Post by billyt »

So it sounds like Wellington management, who know a thing or two about managing a bond portfolio, do not see any value in shortening duration in the current environment.
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bertilak
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Re: Wellington/Wellesley--response to tapering

Post by bertilak »

scratchy1 wrote:Because of the size of these two funds, it seems to me they may have a hard time adjusting portfolios in response. Maybe they won't do much of that because of a more long-term and diverse approach, but I'm afraid I'm not knowledgeable about how the managers might be expected to respond.
Due to their sizes, there will be a sizable :happy number of bonds coming due at any time giving the W/W management teams plenty of chance to buy bonds with better returns as rates rise. Note that when (or just before) a bond reaches maturity it will be worth just what it was bought for and will not be a loss.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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stratton
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Re: Wellington/Wellesley--response to tapering

Post by stratton »

I just received the Wellesley annual report in the mail.

Wellesley has ~13% in treasuries including $600 million in 2043 bonds. If you look in the footnotes you'll also see they are shorting ~$1.4 billion in 10 year treasuries. Looks like someone bought a little insurance against interest rate rise risk.

Paul
...and then Buffy staked Edward. The end.
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