Wellington & Wellesley

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vv19
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Joined: Thu Aug 23, 2012 8:56 am

Wellington & Wellesley

Post by vv19 »

I was looking at the charts for these two iconic funds, and noticed something.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

For the last 20 years or so, they have almost identical returns. I am amazed how Wellesley with 2/3rd bonds has matched the returns of a fund with 2/3rd stocks. To me, it is counter-intuitive. Any insight on why this might be the case?
Jags4186
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Re: Wellington & Wellesley

Post by Jags4186 »

Over the past 20 years stocks have had 1 intense multiyear bear market, and 1 crash. A bond heavy portfolio would be able to capitalize on that by rebalancing so even though it has a lower equity exposure, it was able to keep up.

If you look at the 20 year period starting in 1980 where we had an extended bull market, Wellington significantly outperformed.

What's really interesting to me is if you compare Wellington to Vanguards 500 index from 1980 until today, you have practically identical ends points. You don't have nearly the volatility with Wellington though, although you would have significant moments of underperformance vs a 100% equity portfolio.
Last edited by Jags4186 on Fri Jul 01, 2016 3:30 pm, edited 1 time in total.
lack_ey
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Re: Wellington & Wellesley

Post by lack_ey »

1. The difference between stocks and bonds over the period might be smaller than one might expect (check the data if you need a refresher).

2. Wellesley picks different stocks than Wellington does (they follow somewhat different strategies) and I think Wellesley's did better over the period.

3. Both funds take more credit and term risk in bonds than a total bond kind of fund, reducing the gap between stock and bond returns over the period.

See here (missing some slightly longer term bonds, but I think you know how those did given where rates went):
Image
jfave33
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Re: Wellington & Wellesley

Post by jfave33 »

Coincidence. One has less volatility but lower expected return so at any given time period it may do better. Over the long run Wellington should outperform it which it has done. Part of the reason is that wellesley dropped a lot less than wellington in 2008. Wellington has only just caught up.

Add total stock market to your chart and see how backtesting is flawed due to the dates you pick. 100% equities is beaten by both funds. However in the long run that should not be the case. Try changing the slider to expand the time horizon and see what happens.
Topic Author
vv19
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Re: Wellington & Wellesley

Post by vv19 »

jjface wrote:Coincidence. One has less volatility but lower expected return so at any given time period it may do better. Over the long run Wellington should outperform it which it has done. Part of the reason is that wellesley dropped a lot less than wellington in 2008. Wellington has only just caught up.

Add total stock market to your chart and see how backtesting is flawed due to the dates you pick. 100% equities is beaten by both funds. However in the long run that should not be the case. Try changing the slider to expand the time horizon and see what happens.
I picked these time frames just to check how both of these funds have done in the last 2 bear markets.

But, it does goes to show how great these funds are: providing investors with superior returns with low volatility. The managers clearly know what they are doing.
pingo
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Re: Wellington & Wellesley

Post by pingo »

My vote is coincidence, as well. I could be wrong, but my understanding has been that the only important difference between the two funds is the stock-bond ratio. The stock and bond selection of Wellington and Wellesley are the same/extremely similar. (If I really wanted to know for sure, I'd look it up. Don't accept my lazy internet information at face value.)
drkathryn
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Re: Wellington & Wellesley

Post by drkathryn »

Wellesley takes the bumps better and does well long-term, as well, adds ballast to stock funds. Look at the Vanguard Balances index; the bond investment; on average, it has a shorter duration the either ‘W’ funds.
nura
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Re: Wellington & Wellesley

Post by nura »

drkathryn wrote: Look at the Vanguard Balances index; the bond investment; on average, it has a shorter duration the either ‘W’ funds.
Pick almost any timewindow of 5+years, Wellington outperforms Balanced index despite almost double ER for managed fund.
drkathryn
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Re: Wellington & Wellesley

Post by drkathryn »

nura wrote:
drkathryn wrote: Look at the Vanguard Balances index; the bond investment; on average, it has a shorter duration the either ‘W’ funds.
Pick almost any timewindow of 5+years, Wellington outperforms Balanced index despite almost double ER for managed fund.
At 5 years they are close, and looking backward, 10 years, Wellington is only slightly better on value increase, with greater risk. If one has Wellesley, way not balance it better? Wellington will be hit harder if banks have future difficulty.
looking
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Re: Wellington & Wellesley

Post by looking »

nura wrote:
drkathryn wrote: Look at the Vanguard Balances index; the bond investment; on average, it has a shorter duration the either ‘W’ funds.
Pick almost any timewindow of 5+years, Wellington outperforms Balanced index despite almost double ER for managed fund.
Pick almost any timewindow of 5+years, Wellington outperforms Balanced index despite almost double ER for managed fund.

i thought balanced index outperformed
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