Question about Wellington and Wellesley

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hoops777
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Question about Wellington and Wellesley

Post by hoops777 » Sun Apr 27, 2014 9:40 pm

It seems that the majority of Bogleheads somewhat ridicule a dividend stock strategy yet have high regard for these two funds that have a very strong dividend strategy.What am I missing here?If dividends do not matter then why do they matter so much to possibly the 2 best funds Vanguard offers?Seems to be a disconnect here.I realize these are balanced funds but there is a definite dividend requirement in their stock picking.So if dividends are just mental accounting and are irrelevant why do these highly esteemed funds use only dividend stocks?
K.I.S.S........so easy to say so difficult to do.

tibbitts
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Re: Question about Wellington and Wellesley

Post by tibbitts » Sun Apr 27, 2014 10:03 pm

What you're missing is that there is no disconnect. I'm not sure there's been a survey, but I'd guess the majority of bogleheads don't particularly care for Wellington or Wellesley, except to the extent that they have low expenses compared to alternative active funds. The same can be said for Equity Income. "Highly esteemed" would be definitely be a stretch.

Some bogleheads may have held these funds since before they were aware of index funds, or even since before there were index funds, and would have capital gains considerations in selling them or exchanging for other funds.

The funds use dividend stocks because, at least in the case of Wellesley, they're a component of the investment guidelines.

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CyberBob
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Re: Question about Wellington and Wellesley

Post by CyberBob » Sun Apr 27, 2014 10:12 pm

In a recent interview, Jack Bogle seems to say that Wellington isn't the magical fund some people think it is:
John Bogle wrote:In Wellington Fund's case, in the last decade 97% of its return has been determined by the return of the index I put together for them in 1978.
http://news.investors.com/investing-mut ... ut.htm?p=1

Bob

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timboktoo
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Re: Question about Wellington and Wellesley

Post by timboktoo » Sun Apr 27, 2014 10:18 pm

Wellesley is an income fund. It makes sense for such a fund to focus on dividends.

For Wellington, here's a quote from the prospectus:
The Fund invests 60% to 70% of its assets in dividend-paying and, to a lesser extent,
non-dividend-paying common stocks of established large companies. In choosing
these companies, the advisor seeks those that appear to be undervalued but have
prospects for improvement. These stocks are commonly referred to as value stocks.
So it seems to me that Wellington is a value-oriented balance fund that has a strong preference for dividend-paying stocks.

Some thoughts about this:
* Wellington and Wellesley are not appreciated by all forum posters equally. You can search the forums and see where many people prefer to use index funds instead. So don't lump all Bogleheads together.
* You can nevertheless invest in these funds and still be following the Boglehead philosophy almost to the T.
* Wellington began a very long time ago. Focusing on dividends in that case makes some sense, given when the fund grew up. An appreciation for this fund can also be explained by its age, its demonstration of the importance of balance and the possible value premium.

The relevance of dividends and the strengths and weaknesses of these funds have been discussed at length on the forum many times. If you find that dividends are important for your portfolio, then by all means make them a priority. You can build a fine portfolio that way. There are many roads to Dublin, or whatever :)

- Tim

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telemark
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Re: Question about Wellington and Wellesley

Post by telemark » Sun Apr 27, 2014 11:38 pm

It demonstrates that as long as you keep costs low and choose an appropriate ratio of stocks to bonds, most of the things we like to argue about are going to be lost in the noise anyway.

sscritic
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Re: Question about Wellington and Wellesley

Post by sscritic » Sun Apr 27, 2014 11:50 pm

Sure there is!

My 10 year old granddaughter just announced that she didn't like fish, except the salmon she got at grandpa's house. Humans are inconsistent; robots are consistent. Bogleheads may seem like robots, but they are only part-time robots. At least 10% of the time they are humans.

Bogleheads don't like dividend oriented funds, except for the dividend oriented funds they like. So bogleheads, like 10 year olds, are human. So what?

Professor Emeritus
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Re: Question about Wellington and Wellesley

Post by Professor Emeritus » Mon Apr 28, 2014 2:25 am

sscritic wrote:Sure there is!

My 10 year old granddaughter just announced that she didn't like fish, except the salmon she got at grandpa's house. Humans are inconsistent; robots are consistent. Bogleheads may seem like robots, but they are only part-time robots. At least 10% of the time they are humans.

Bogleheads don't like dividend oriented funds, except for the dividend oriented funds they like. So bogleheads, like 10 year olds, are human. So what?
Actually your example does not show inconsistency. There is a general class and an exception. :happy I don't have sex with married women, except for my wife" :happy is not "inconsistent".

I chose Wellesley for the bulk of the "non stock index" portion of my portfolio assets. The rational is that the academic work on the superiority of stock indexing does not automatically apply to income oriented indexing. It is unclear that the market in bond risks functions efficiently.

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Re: Question about Wellington and Wellesley

Post by Roy » Mon Apr 28, 2014 6:05 am

Their stocks are Value stocks. And they are often of a high Quality. Overall, these funds may also have a low comparative Beta relative to their peers (a Buffet like quality). Plus their costs are tiny for active funds, which seems to be their biggest hurdle. Given what Larry has been discussing these days with the newer "factors," and the low Beta talk (and the older, Value) I wonder if these two companies have realized and used these approaches long before the academics began talking about them. And the last 40 years has been kind to bonds. Taken altogether this may explain why the funds do well.

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Re: Question about Wellington and Wellesley

Post by livesoft » Mon Apr 28, 2014 6:25 am

Does anyone confuse the bond dividends in W & W with stock dividends? I think these funds have lots of dividends mostly because of the fixed income portions of their portfolios. Those bond portions are have average longer duration and maturity than the total bond index fund.
Wiki This signature message sponsored by sscritic: Learn to fish.

dkturner
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Re: Question about Wellington and Wellesley

Post by dkturner » Mon Apr 28, 2014 6:37 am

Take a look at the actual makeup of the W and W portfolios. Neither the equity portions nor the fixed income portions look like any of the available Vanguard index funds. In the equity holdings W and W hold some international stocks and these international holdings don't look like the holdings in any of Vanguard's international index funds. In the fixed income holdings W and W emphasize higher quality corporate bonds than Vanguard's corporate bond index funds. The differences aren't dramatic, but I would challenge the boyz to assemble a portfolio of Vanguard index funds that have had superior risk adjusted returns than either of the W and W funds over an extended timeframe.

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Re: Question about Wellington and Wellesley

Post by jb1934 » Mon Apr 28, 2014 7:00 am

dkturner wrote:Take a look at the actual makeup of the W and W portfolios. Neither the equity portions nor the fixed income portions look like any of the available Vanguard index funds. In the equity holdings W and W hold some international stocks and these international holdings don't look like the holdings in any of Vanguard's international index funds. In the fixed income holdings W and W emphasize higher quality corporate bonds than Vanguard's corporate bond index funds. The differences aren't dramatic, but I would challenge the boyz to assemble a portfolio of Vanguard index funds that have had superior risk adjusted returns than either of the W and W funds over an extended timeframe.
+1

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Re: Question about Wellington and Wellesley

Post by drzzzzz » Mon Apr 28, 2014 7:28 am

For me Wellington offers some of the diversification of a 3 fund portfolio but with low expenses, advisor guidance, and bond and stock diversification in one account which both limits huge upside but makes the downside less risky as well - wellington seems to like value stocks with dividends and currently has about 34% of their holdings in bonds - overall this fund's performance has been admirable over both up and down markets which makes it easier to sleep at night while keeping a larger tilt toward stocks - this has been a favorite fund in my retirement accounts.

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BL
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Re: Question about Wellington and Wellesley

Post by BL » Mon Apr 28, 2014 7:35 am

From page one of the Wiki:
In summary, a Bogleheads investor tends to (1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.

Roy
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Re: Question about Wellington and Wellesley

Post by Roy » Mon Apr 28, 2014 7:44 am

These funds style drift with their fixed income— maturity and credit quality. As we have seen, that can work or not. Bill Gross has certainly shown that with his fund, though the W&W funds are less aggressive, especially in the international.

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Re: Question about Wellington and Wellesley

Post by midareff » Mon Apr 28, 2014 7:47 am

I suspect that for the S&D folks like myself they are just too...... plain Jane. We think we can do better with our own mix of funds on both the bond and equity side. Individually, it would be a bit difficult to find a spliced index to compare them against but we know at the end of the day, if wifey was a bit challenged in these areas there are lots worse things than leaving them behind to transfer her dividends every quarter.

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Re: Question about Wellington and Wellesley

Post by tibbitts » Mon Apr 28, 2014 7:49 am

Roy wrote:Their stocks are Value stocks. And they are often of a high Quality. Overall, these funds may also have a low comparative Beta relative to their peers (a Buffet like quality). Plus their costs are tiny for active funds, which seems to be their biggest hurdle. Given what Larry has been discussing these days with the newer "factors," and the low Beta talk (and the older, Value) I wonder if these two companies have realized and used these approaches long before the academics began talking about them. And the last 40 years has been kind to bonds. Taken altogether this may explain why the funds do well.
Everybody does realize that the Wellington of the past wasn't the Wellington you see today, correct? If anything the fund is the poster-boy for style drift. As for quality, Grantham seemingly had his opportunity to play that card at VG, and that got him... well, not renewed (fired, whatever.) Of course Wellington fired Bogle, too, so maybe that's not significant. But if Wellington's managers realized value approaches before the academics, it would be hard to tell, since they were so busy chasing growth. And what are the odds of a fund bouncing back from not just year after year of sub-market investment returns, but a 75% loss of assets over a nearly 20-year period? Probably most funds would have been dissolved/merged/etc.

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Re: Question about Wellington and Wellesley

Post by dbr » Mon Apr 28, 2014 8:02 am

hoops777 wrote:It seems that the majority of Bogleheads somewhat ridicule a dividend stock strategy yet have high regard for these two funds that have a very strong dividend strategy.What am I missing here?If dividends do not matter then why do they matter so much to possibly the 2 best funds Vanguard offers?Seems to be a disconnect here.I realize these are balanced funds but there is a definite dividend requirement in their stock picking.So if dividends are just mental accounting and are irrelevant why do these highly esteemed funds use only dividend stocks?
It could be that a majority of Bogleheads do not have a high regard, nor a low regard, for these two funds. It could also be that whatever regard Bogleheads have for these funds has nothing to do with some alleged dividend strategy. As mentioned, the strategy might better be characterized as a low cost value stock and corporate bonds strategy. If there is any single comment that is heard repeatedly by those holding the funds it that they have a history of "doing well," whatever that means. It could even be that those funds don't have a strong dividend strategy. For one thing, as pointed out by another poster, those funds are balanced funds that derive significant dividends from bonds while a "dividend strategy" is a stock allocation concept.

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Re: Question about Wellington and Wellesley

Post by thx1138 » Mon Apr 28, 2014 8:12 am

Also realize just because a fund may have many dividend paying stocks doesn't mean dividends are the selection criteria.

The primary objection around here to "dividend stocks" is that paying a dividend is a poor selection criteria for stocks. There are other selection criteria that are much better for screening and some of these will give a big list of dividend stocks, but they will also eliminate a whole bunch of dividend stocks and include some non-dividend stocks. If you look at that portfolio you might conclude a preference for dividends when in fact dividends played no role in selecting the portfolio.

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Re: Question about Wellington and Wellesley

Post by Levett » Mon Apr 28, 2014 8:41 am

"I'd guess the majority of bogleheads don't particularly care for Wellington or Wellesley"

No guessing for me.

The only thing I "care for" is long-term return consistent with my objectives.

I don't invest in Bogleheads. I invest in funds, including W & W. :D

Lev

hoops777
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Re: Question about Wellington and Wellesley

Post by hoops777 » Mon Apr 28, 2014 9:58 am

Thank you for your replies.Either way it is difficult to argue with the success of these funds.I know the big one now is that bonds have been on a historical run so these funds will suffer going forward because their bond duration is a tad long,but we will see.To those who want to deny these are 2 of the best funds Vanguard offers....pretty tough argument if you look at the historical returns.Going forward who knows?Going back....pretty obvious.
K.I.S.S........so easy to say so difficult to do.

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ogd
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Re: Question about Wellington and Wellesley

Post by ogd » Mon Apr 28, 2014 12:16 pm

hoops777 wrote:Either way it is difficult to argue with the success of these funds.
Hoops: one thing to remember is that we're only having these conversations about funds that have done well. There are a million other forgotten funds, most of them closed, that nobody is proposing as a superior alternative to indexes today, although I'm sure they looked good on paper at one point or another. This is survivorship bias and it should be seen as diminishing the impact of performance conclusions, because some amount of outperformance is guaranteed by us even having this discussion. The bias is a relative of the "anthropic principle" that is either the salvation or the bane of modern physics, depending on who you ask.

There's no question that Wellington has done well, though it's a little hard to see how well because of that bond allocation. One clearer data point for me is that the Windsor fund, which arguably represents the same "sound, value oriented" stock approach of the management firm in its purer form, has been very pedestrian over the last 30 years after a good start.

The W funds are good because they're cheap and they don't seem to do anything crazy anymore (after the messups in the 60's). Most bogleheads like them for that reason, and because they're balanced and easy. If you're not ready to give up the premise of active management entirely, they're a good alternative and you could do a lot of worse.

I used to hold quite a bit Wellington in my semi-Boglehead days, but not anymore because of taxes and manager risk -- however small in the case of the W funds, there's always a chance that they pull a Bill Miller and concentrate my portfolio in precisely the wrong thing at precisely the wrong time. In Total Stock Market, I get none of that regret plus some decent savings in expenses every year.

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Re: Question about Wellington and Wellesley

Post by Roy » Mon Apr 28, 2014 2:01 pm

ogd wrote: I used to hold quite a bit Wellington in my semi-Boglehead days, but not anymore because of taxes and manager risk -- however small in the case of the W funds, there's always a chance that they pull a Bill Miller and concentrate my portfolio in precisely the wrong thing at precisely the wrong time. In Total Stock Market, I get none of that regret plus some decent savings in expenses every year.
Indexes can relieve some of that anxiety you mention and that can be a good idea for many who share that view. And then there are the location issues you mention, which matter.

Many investors seem to like these two funds based on performance and that they are just one fund (with a cool sounding name), rather than because they described a specific asset allocation they desired; that allocation, appears to have been dedicated to Value stocks (approximately 65% or 35%, Wellington and Wellesley, respectively) and the rest in some mix of Intermediate and longer bonds (Corporates and Treasuries in some combo, depending on when one looked).

Assuming one's plan truly is such an allocation, rather than to the fund itself, one can also use passive indexes for all (Value Stocks and some mix of Intermediate and Long Treasuries and Corporates) in the exact percentages desired (maybe 3 funds total). But I don't think the allocation is what the attraction is.

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Re: Question about Wellington and Wellesley

Post by S&L1940 » Mon Apr 28, 2014 2:16 pm

Levett wrote:"I'd guess the majority of bogleheads don't particularly care for Wellington or Wellesley"
No guessing for me.
The only thing I "care for" is long-term return consistent with my objectives.
I don't invest in Bogleheads. I invest in funds, including W & W. :D
Lev
Recently, Bogle said (or was quoted) that he was still a loyal Wellington investor and mentioned his historical connection with them. I figure Jack Bogle does not stay with an investment just for sentimental reasons. My 50/50 allocation has a nice chunk in Wellington and I sleep (and nap) quite comfortably. Rich
Don't it always seem to go * That you don't know what you've got * Till it's gone

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CyberBob
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Re: Question about Wellington and Wellesley

Post by CyberBob » Mon Apr 28, 2014 2:32 pm

1530jesup wrote:Recently, Bogle said (or was quoted) that he was still a loyal Wellington investor and mentioned his historical connection with them. I figure Jack Bogle does not stay with an investment just for sentimental reasons.
Recent Investor's Business Daily interview:
  • IBD: Do you still own shares in Vanguard Wellington Fund ? If so, aren't you a shareholder in an actively managed fund?

    Bogle: First, let me make one point clear. I own a lot because I started working at Wellington Management in 1951. We had a defined contribution pension plan, and 15% of my compensation went into that plan, which is entirely the Wellington Fund. I've been accumulating it for 60 years and I'm not about to stop.
    I've kept the original legacy position for two reasons. One, that was the fund I was brought up with. Two, its founder, Walter Morgan, gave me my job at Wellington. I owe it to him.

    IBD: It's not exactly a gonzo actively managed fund is it?

    Bogle: The typical fund, 85% of its performance is determined by action of the stock market. In Wellington Fund's case, in the last decade 97% of its return has been determined by the return of the index I put together for them in 1978.
    It consists 35% of a corporate bond index fund, I think it's the Barclays Aggregate now. And 65% is the total stock market index fund. So 3% of its performance is due to active management.
http://news.investors.com/investing-mut ... ks-out.htm

Bob

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Re: Question about Wellington and Wellesley

Post by lowerleisureclass » Mon Apr 28, 2014 2:33 pm

I have Wellington because when I was simplifying from the complex, expensive mix of funds my (former) ML advisor suggested I use in my 401K, I narrowed it down to either Wellington or Target 2035. Wellington had a higher percentage of bonds, which I am light on, and had a 0.01 lower expense ratio, so it's the one I chose.
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hoops777
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Re: Question about Wellington and Wellesley

Post by hoops777 » Mon Apr 28, 2014 3:47 pm

Thanks OGD for your usual soundly reasoned response.I do not own either fund but was considering it.....which means those that do should be worried :D
K.I.S.S........so easy to say so difficult to do.

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Re: Question about Wellington and Wellesley

Post by Dandy » Mon Apr 28, 2014 4:36 pm

W and W are often praised by members of the forum despite being actively managed/relatively low cost. Most often, as I recall, because of their long and enviable track record/performance. Can't argue much about that. But, active management is usually not recommended otherwise even if the fund had performed well over a long time frame. What seems to be different about these two active funds is that they are relatively low cost and not overly active as well as their track record.

I own a bit of Wellesley but won't over the long run. Tough for W and W to manage tens of billions of equity dollars and own only about 100 stocks. I don't know how they do it or how long they can do it but I love their track record.

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Re: Question about Wellington and Wellesley

Post by Levett » Mon Apr 28, 2014 5:05 pm

Dandy,

Wellington scored again today with its large position in AZN (+ PFE).

Low cost, low turnover, patient--just what the Dr. ordered. ;-)

Lev

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Re: Question about Wellington and Wellesley

Post by Dandy » Mon Apr 28, 2014 5:44 pm

Wellington scored again today with its large position in AZN (+ PFE).

Low cost, low turnover, patient--just what the Dr. ordered. ;-)


Enjoy - though we both know that one day's result are truly meaningless. I don't knock W and W just don't choose
to stake my retirement on any active funds. But wish well to those that do. Your gain doesn't make me unhappy or envious.

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Re: Question about Wellington and Wellesley

Post by Levett » Mon Apr 28, 2014 6:06 pm

Meant nothing, Dandy, other than Wellington Mgt. does what it does and tends to reward long-term investors.

Traders, happily, tend not to be attracted to long-term investing.

It's all in the objective.

Lev

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Re: Question about Wellington and Wellesley

Post by investor » Mon Apr 28, 2014 6:43 pm

Have had Wellington for many years. As a long time retiree I am very happy with the fund performance.

investor

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Re: Question about Wellington and Wellesley

Post by cfs » Mon Apr 28, 2014 8:04 pm

Good conversation

Where is Trev when you need him? Anyone holding the Dynamic Duo in their IRA, 401k, 457, etc, non-taxable accounts should be congratulated and not given the see I told you so talk. Of course there are plenty of index funds out there. Some like their index funds and that's fine. The holders of the Dynamic Duo like what they have, for them the Dynamic Duo have passed the pillow test and are now part of their SWAN or sleep well at night portfolio.

Do Great Things! And thanks for reading this note.
~ Member of the Active Retired Force since 2014 ~

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Re: Question about Wellington and Wellesley

Post by tibbitts » Mon Apr 28, 2014 11:05 pm

1530jesup wrote:I figure Jack Bogle does not stay with an investment just for sentimental reasons. Rich
Judging from the Bogle quote, it does appear he holds investments purely for sentimental reasons.

I would have guessed capital gains would have figured into the equation, but it sounds like that wouldn't apply in this case.

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Re: Question about Wellington and Wellesley

Post by Levett » Tue Apr 29, 2014 6:15 am

Just curious, and perhaps someone at this site may know.

It's easy to find turnover info for a fund, but that's largely (not necessarily exclusively) a fund management decision.

But are there any studies out there that show how long a "typical" investor in such and such fund (like Wellington or Wellesley or the three-fund portfolio) hold on to the fund? Three generations in my family have owned or do own either Wellington or Wellesley.

Are there demonstrable "keeper" funds out there? I expect there are, but I'd like to see hard evidence.

Lev

P.S. While not exactly a "fund," I have held TIAA Traditional since 1968.

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Re: Question about Wellington and Wellesley

Post by hoops777 » Tue Apr 29, 2014 5:11 pm

CFS....That was a good post.It is pretty difficult to criticize these 2 funds with their long histories and stellar performance.To each their own :sharebeer
K.I.S.S........so easy to say so difficult to do.

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Re: Question about Wellington and Wellesley

Post by VPP » Tue Apr 29, 2014 7:16 pm

If I wanted 6%, VWINX would be my choice. It is amazing and I am shocked so many bogleheads don't absolutely love this fund. Run the numbers for any time period and it does the same thing and in the last 14 years it outperforms all the other variations in the simba backtest with a much lower market correlation and the worst year in 40 years is -9.84% and it got that right back. The managers have the ability to adjust the bonds and stocks enough to get through anything.

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Re: Question about Wellington and Wellesley

Post by Mtn Hiker » Tue Apr 29, 2014 8:05 pm

If I were investing on my own, the way Wellesley does, it is exactly the way I would do it - if I could. I own Wellesley Income. If I precede my wife she knows exactly how, why and what to do with the Wellesley fund. Rebalancing and index mix - I'm afraid not.

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Re: Question about Wellington and Wellesley

Post by Johm221122 » Tue Apr 29, 2014 8:18 pm

VPP wrote:  The managers have the ability to adjust the bonds and stocks enough to get through anything.
This is the wrong reason to invest in active fund If fund meets your investment goals and style is a better reason.But managers come and go, along with there ability to overperform the market

John

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Re: Question about Wellington and Wellesley

Post by ogd » Tue Apr 29, 2014 8:21 pm

Johm221122 wrote:
VPP wrote:  The managers have the ability to adjust the bonds and stocks enough to get through anything.
This is the wrong reason to invest in active fund If fund meets your investment goals and style is a better reason.But managed come and go, along with there ability to overperform the market

John
I forgot to say above, this was one of my reasons for investing with Wellington originally. I've since decided that this is actually a dangerous notion and a reason to avoid. Even more so after watching Vanguard Tactical Allocation crash and burn.

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Re: Question about Wellington and Wellesley

Post by VPP » Wed Apr 30, 2014 10:34 am

That is exactly it, Bogleheads obsess about a fund that has "managers" but Wellesley is not about the managers, it is the structure of the fund that drives the performance. The structure gives the ability to thrive in all environments. Look at 40 years of success. How many years does this fund have to keep doing it before people quit getting hung up on the fact that it has managers. Run the numbers in Simba for 2000-2013, 1995-2013, 2008-2013 and even when inflation was high, in the 70's (6.8%), 80's(15.6), 90's(11.04), 2000-2013(9.47), 08-2013(7.62) and all this with 5 down years in 40 years and only one down year since 99 in 08. This fund gets the returns the stock and bond market should provide for an investor. I get it if you are a person that has some other reason like wanting more stocks or whatever but if you want a great fund that will always give 7-10%, this is it, especially for someone closer to retirement. You can hold 10 different index funds if you want but they still do not beat this fund in the last 20 years and all with less risk. Sure, if you are young and have 20-40 years to go, you just go all stocks and it's a no brainer but when you get within 15 years of retirement and realize that the S&P lost all of it return in excess of bonds back to 95 in the 08 crash you have to do something different. This is the model fund.

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Re: Question about Wellington and Wellesley

Post by Desert » Wed Apr 30, 2014 11:35 am

VPP wrote:That is exactly it, Bogleheads obsess about a fund that has "managers" but Wellesley is not about the managers, it is the structure of the fund that drives the performance. The structure gives the ability to thrive in all environments. Look at 40 years of success. How many years does this fund have to keep doing it before people quit getting hung up on the fact that it has managers. Run the numbers in Simba for 2000-2013, 1995-2013, 2008-2013 and even when inflation was high, in the 70's (6.8%), 80's(15.6), 90's(11.04), 2000-2013(9.47), 08-2013(7.62) and all this with 5 down years in 40 years and only one down year since 99 in 08. This fund gets the returns the stock and bond market should provide for an investor. I get it if you are a person that has some other reason like wanting more stocks or whatever but if you want a great fund that will always give 7-10%, this is it, especially for someone closer to retirement. You can hold 10 different index funds if you want but they still do not beat this fund in the last 20 years and all with less risk. Sure, if you are young and have 20-40 years to go, you just go all stocks and it's a no brainer but when you get within 15 years of retirement and realize that the S&P lost all of it return in excess of bonds back to 95 in the 08 crash you have to do something different. This is the model fund.
The Wellesley fund's return and low volatility have indeed been impressive. One question though: what do you mean when you refer to the "structure of the fund" driving performance? Are there certain investing rules that the managers must adhere to? And if so, couldn't those be replicated with index funds?

I do own some Wellesley by the way, and I'm very happy with its performance. The only thing I'm nervous about is the manager risk that others have brought up.

dkturner
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Re: Question about Wellington and Wellesley

Post by dkturner » Wed Apr 30, 2014 11:45 am

Desert wrote:
The Wellesley fund's return and low volatility have indeed been impressive. One question though: what do you mean when you refer to the "structure of the fund" driving performance? Are there certain investing rules that the managers must adhere to? And if so, couldn't those be replicated with index funds?

Several days ago I posted a challenge, to the usual suspects, to come up with an index fund portfolio that would replicate Wellesley's risk adjusted performance over an extended period of time. We haven't had any takers - and I'm not holding my breath. :shock:

investor
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Re: Question about Wellington and Wellesley

Post by investor » Wed Apr 30, 2014 11:58 am

manager risk: ?!?

Both Wellesley and Wellington have had several managers over the years. They just continue on. Perhaps the low expenses and active managers are what makes these funds work.

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VPP
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Re: Question about Wellington and Wellesley

Post by VPP » Wed Apr 30, 2014 12:29 pm

Desert wrote:
VPP wrote:That is exactly it, Bogleheads obsess about a fund that has "managers" but Wellesley is not about the managers, it is the structure of the fund that drives the performance. The structure gives the ability to thrive in all environments. Look at 40 years of success. How many years does this fund have to keep doing it before people quit getting hung up on the fact that it has managers. Run the numbers in Simba for 2000-2013, 1995-2013, 2008-2013 and even when inflation was high, in the 70's (6.8%), 80's(15.6), 90's(11.04), 2000-2013(9.47), 08-2013(7.62) and all this with 5 down years in 40 years and only one down year since 99 in 08. This fund gets the returns the stock and bond market should provide for an investor. I get it if you are a person that has some other reason like wanting more stocks or whatever but if you want a great fund that will always give 7-10%, this is it, especially for someone closer to retirement. You can hold 10 different index funds if you want but they still do not beat this fund in the last 20 years and all with less risk. Sure, if you are young and have 20-40 years to go, you just go all stocks and it's a no brainer but when you get within 15 years of retirement and realize that the S&P lost all of it return in excess of bonds back to 95 in the 08 crash you have to do something different. This is the model fund.
The Wellesley fund's return and low volatility have indeed been impressive. One question though: what do you mean when you refer to the "structure of the fund" driving performance? Are there certain investing rules that the managers must adhere to? And if so, couldn't those be replicated with index funds?

I do own some Wellesley by the way, and I'm very happy with its performance. The only thing I'm nervous about is the manager risk that others have brought up.
Desert, by structure I mean the prospectus mandate, including equity/bond allocation, dividend stocks, value investing, flexibility for some portfolio adjustment as the environment changes along with everything else stated in the prospectus. I know that many bogleheads believe that no one can possibly make active investment decisions but I would argue that they are doing that very thing by deciding which index funds they own. I am simply saying that Wellesley has earned it's stripes and should no longer be doubted. For anyone to doubt Wellesley, I think would argue a flimsy case. Again, if it were another reason, like wanting more diversification or other allocations etc. that is all good but the "manager" argument is dead when it comes to Wellesley. I would have no problem with 100% Wellesley and hope to get there if all goes well.

dkturner
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Re: Question about Wellington and Wellesley

Post by dkturner » Wed Apr 30, 2014 12:59 pm

Johm221122 wrote:
VPP wrote:  The managers have the ability to adjust the bonds and stocks enough to get through anything.
This is the wrong reason to invest in active fund If fund meets your investment goals and style is a better reason.But managers come and go, along with there ability to overperform the market

John
Over the last 44 years the managers of the Wellesley Income Fund have come and gone time and time again, but the fund continues to crank out superior risk adjusted returns. Probably just lucky? :wink:

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Re: Question about Wellington and Wellesley

Post by beammeupscotty » Wed Apr 30, 2014 1:00 pm

dkturner wrote:Several days ago I posted a challenge, to the usual suspects, to come up with an index fund portfolio that would replicate Wellesley's risk adjusted performance over an extended period of time. We haven't had any takers - and I'm not holding my breath. :shock:
I can't find your earlier challenge, but here is one (using Simba's spreadsheet):

19% Small-Cap Value
10% REIT
10% Total International
61% Intermediate Treasuries

Wellesley is currently 39% stocks, so that is what I used.

Since 1972:
Wellesley: CAGR 9.96%, Worst year -9.84%, StdDev 9.05%, Sharpe 0.57
Index: CAGR 9.96%, Worst year -6.08%, StdDev 7.95%, Sharpe 0.64

dkturner
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Re: Question about Wellington and Wellesley

Post by dkturner » Wed Apr 30, 2014 1:18 pm

beammeupscotty wrote:
dkturner wrote:Several days ago I posted a challenge, to the usual suspects, to come up with an index fund portfolio that would replicate Wellesley's risk adjusted performance over an extended period of time. We haven't had any takers - and I'm not holding my breath. :shock:
I can't find your earlier challenge, but here is one (using Simba's spreadsheet):

19% Small-Cap Value
10% REIT
10% Total International
61% Intermediate Treasuries

Wellesley is currently 39% stocks, so that is what I used.

Since 1972:
Wellesley: CAGR 9.96%, Worst year -9.84%, StdDev 9.05%, Sharpe 0.57
Index: CAGR 9.96%, Worst year -6.08%, StdDev 7.95%, Sharpe 0.64
I think you left out the symbols for those four index funds. 8-)

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Re: Question about Wellington and Wellesley

Post by Bonnan » Wed Apr 30, 2014 1:39 pm

dk.........-1, I'll take being lucky for 44 years anytime.

vpp............Your point relative to indexers "actively" picking funds is routinely overlooked for the most part. Maybe a few exceptions. Also we are all "timers": some longer than others.

Wellesley is my single biggest holding. I'll be darn if I can out perform it with other money.

beammeupscotty
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Re: Question about Wellington and Wellesley

Post by beammeupscotty » Wed Apr 30, 2014 2:09 pm

dkturner wrote:
beammeupscotty wrote:
dkturner wrote:Several days ago I posted a challenge, to the usual suspects, to come up with an index fund portfolio that would replicate Wellesley's risk adjusted performance over an extended period of time. We haven't had any takers - and I'm not holding my breath. :shock:
I can't find your earlier challenge, but here is one (using Simba's spreadsheet):

19% Small-Cap Value
10% REIT
10% Total International
61% Intermediate Treasuries

Wellesley is currently 39% stocks, so that is what I used.

Since 1972:
Wellesley: CAGR 9.96%, Worst year -9.84%, StdDev 9.05%, Sharpe 0.57
Index: CAGR 9.96%, Worst year -6.08%, StdDev 7.95%, Sharpe 0.64
I think you left out the symbols for those four index funds. 8-)
From the Data_Sources tab in the Simba spreadsheet:

Small-Cap Value
Ibbotson 1972-1978
Russell 2000 Value Index 1979-1998
Vanguards Small Cap Value Index Fund (VISVX) 1999-2013

REIT
Nat. Assn. of Real Estate Inv Trusts 1972-1996
Vanguards REIT Index Fund (VGSIX) - 1997-2013

Total Int'l
MSCI EAFE Index 1972-1987 (Developed Only)
85% EAFE Index
Vanguards Total International Index Fund (VGTSX) 1997-2013

Treasuries
Tamasset Spreadsheet 1972-1991
Vanguards InterTerm Treasury Fund (VFITX) 1992-2013

A Vanguard fund for each has existed since 1999:
Wellesley: CAGR 6.94%, StdDev 6.83%, Sharpe 0.73
Index: CAGR 8.11%, StdDev 6.4%, Sharpe 0.96

dkturner
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Re: Question about Wellington and Wellesley

Post by dkturner » Wed Apr 30, 2014 2:45 pm

beammeupscotty wrote:
dkturner wrote:
beammeupscotty wrote:
dkturner wrote:Several days ago I posted a challenge, to the usual suspects, to come up with an index fund portfolio that would replicate Wellesley's risk adjusted performance over an extended period of time. We haven't had any takers - and I'm not holding my breath. :shock:
I can't find your earlier challenge, but here is one (using Simba's spreadsheet):

19% Small-Cap Value
10% REIT
10% Total International
61% Intermediate Treasuries

Wellesley is currently 39% stocks, so that is what I used.

Since 1972:
Wellesley: CAGR 9.96%, Worst year -9.84%, StdDev 9.05%, Sharpe 0.57
Index: CAGR 9.96%, Worst year -6.08%, StdDev 7.95%, Sharpe 0.64
I think you left out the symbols for those four index funds. 8-)
Small-Cap Value
Ibbotson 1972-1978
Russell 2000 Value Index 1979-1998
Vanguards Small Cap Value Index Fund (VISVX) 1999-2013

REIT
Nat. Assn. of Real Estate Inv Trusts 1972-1996
Vanguards REIT Index Fund (VGSIX) - 1997-2013

Total Int'l
MSCI EAFE Index 1972-1987 (Developed Only)
85% EAFE Index
Vanguards Total International Index Fund (VGTSX) 1997-2013

Treasuries
Tamasset Spreadsheet 1972-1991
Vanguards InterTerm Treasury Fund (VFITX) 1992-2013

A Vanguard index for each has existed since 1999:
Wellesley: CAGR 6.94%, StdDev 6.83%, Sharpe 0.73
Index: CAGR 8.11%, StdDev 6.4%, Sharpe 0.96
Congrats! I did a quick check of the returns, unrebalanced, over the last 15 years and you win. I not going to hold it against you that 61% of your portfolio is actively managed (VFITX). 39% indexed is close enough. :beer

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