Vanguard's Wellesley Income fund is incredible

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Re: Vanguard's Wellesley Income fund is incredible

Post by tennisplyr » Wed Feb 08, 2017 7:23 pm

In my mid sixties and have been holding it for 10+ years....no complaints. :D
Those who move forward with a happy spirit will find that things always work out.

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Re: Vanguard's Wellesley Income fund is incredible

Post by alec » Wed Feb 08, 2017 8:03 pm

Robert T wrote:
willthrill81 wrote:They've got something good.
They have a large value tilt (and no alpha beyond factor exposure).

Here are the factor loads of Vanguard Wellesley. With thanks to Alec for the data from 1970-2004, which I extended to 2014.

8/1970 to 12/2014

0.03 = Alpha
+0.30 = Mkt
-0.08 = Size
+0.16 = Value
+0.35 = Term
+0.28 = Default

Mkt (Mkt-rf), size (SmB), and value (HmL) are from Ken French’s website. Term and default are from the AQR website (data ends 12/2014).

Adding momentum and quality doesn’t improve the explanatory power (no increase in R^2).

The above results implies:

An average 30:70 stock:bond portfolio
Within stocks a -0.26 and 0.51 size and value load
Within bonds a 0.50 and 0.40 term and default load
Alpha was not statistically different from zero

"Over the long-term what matters is factor exposure and expense".

Robert
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:thumbsup

Where on the AQR website are the term and default factors?
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Re: Vanguard's Wellesley Income fund is incredible

Post by frankyo » Wed Feb 08, 2017 9:07 pm

Is there a way to approximate the Wellesley fund with a three-fund portfolio using VG ETFs along with the AA? I don't have access to VG funds nor Admiral shares. Thanks.

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Re: Vanguard's Wellesley Income fund is incredible

Post by alec » Wed Feb 08, 2017 9:10 pm

frankyo wrote:Is there a way to approximate the Wellesley fund with a three-fund portfolio using VG ETFs along with the AA? I don't have access to VG funds nor Admiral shares. Thanks.
See this thread

viewtopic.php?f=10&t=210331&newpost=3229925
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robert T » Wed Feb 08, 2017 9:18 pm

alec wrote:
:thumbsup

Where on the AQR website are the term and default factors?
Here they are: https://www.aqr.com/library/data-sets/c ... paper-data
  • DEF = CORP_XS: Ibbotson's U.S. Long-Term Corporate Bond Total Return minus empirical-duration-matched long-term government bonds from Ibbotson's U.S. Long-Term Government Bond Total Return.

    TERM = GOVT_XS: Ibbotson's U.S. Long-Term Government Bond Total Return minus Ibbotson's U.S. Treasury Bill Total Return.
DEF is slightly different from Fama-French 1993 as AQR set tries to match durations.

Robert
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Re: Vanguard's Wellesley Income fund is incredible

Post by Sandtrap » Thu Feb 09, 2017 9:31 am

Does including the Wellington Fund (VWENX) make Vanguard's Wellesley Income Fund (VWIAX) even more incredible?

Metaphorically: Since Wellington adds equities tilt (AA 65/35), "Like adding a Holley double pumper four barrel carb to a 1969 Chevy Camaro SS 396?" :D

So then you have a mix that's Vanguard Wellesley Fund/ Vanguard Wellington Fund that's double incredible?

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Re: Vanguard's Wellesley Income fund is incredible

Post by Wakefield1 » Thu Feb 09, 2017 10:30 am

Sandtrap wrote:Does including the Wellington Fund (VWENX) make Vanguard's Wellesley Income Fund (VWIAX) even more incredible?

Metaphorically: Since Wellington adds equities tilt (AA 65/35), "Like adding a Holley double pumper four barrel carb to a 1969 Chevy Camaro SS 396?" :D

So then you have a mix that's Vanguard Wellesley Fund/ Vanguard Wellington Fund that's double incredible?
I might be mistaken but I am under the impression that Wellington and Wellesley are made of different proportions of two actively managed ingredient funds,one of bonds(plus some REIT?) and one of stocks-just two different blends like the old Sunoco gasoline blending pump,only that pump delivered several proportioned blends,not just two (it drew from two tanks,one of high octane gasoline and one of below regular octane

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Re: Vanguard's Wellesley Income fund is incredible

Post by Sandtrap » Thu Feb 09, 2017 10:59 am

Wakefield1 wrote:
Sandtrap wrote:Does including the Wellington Fund (VWENX) make Vanguard's Wellesley Income Fund (VWIAX) even more incredible?

Metaphorically: Since Wellington adds equities tilt (AA 65/35), "Like adding a Holley double pumper four barrel carb to a 1969 Chevy Camaro SS 396?" :D

So then you have a mix that's Vanguard Wellesley Fund/ Vanguard Wellington Fund that's double incredible?
I might be mistaken but I am under the impression that Wellington and Wellesley are made of different proportions of two actively managed ingredient funds,one of bonds(plus some REIT?) and one of stocks-just two different blends like the old Sunoco gasoline blending pump,only that pump delivered several proportioned blends,not just two (it drew from two tanks,one of high octane gasoline and one of below regular octane
Yes. Good point and description.
Vanguard Wellesley Income Fund at 35/65 and Vanguard Wellington Fund at 65/35.

Why is this or some variation of owning these 2 funds at the same time so popular on Bogleheads?
Last edited by Sandtrap on Sat Feb 11, 2017 9:33 am, edited 1 time in total.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Theoretical » Thu Feb 09, 2017 12:23 pm

They're similar strategies, but not quite identical. Wellesley has about half the number of companies and is a bit more focused on dividend Income than Wellington. Bond-wise, I'd imagine they're very similar.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Robert T » Thu Feb 09, 2017 1:01 pm

.
Here are the factor loads of Vanguard Wellington over the same time period as the earlier estimates for Vanguard Wellesley. With again thanks to Alec for the data from 1970-2004, which I extended to 2014.

8/1970 to 12/2014

-0.01 = Alpha
+0.65 = Mkt
-0.13 = Size
+0.15 = Value
+0.17 = Term
+0.16 = Default

Mkt (Mkt-rf), size (SmB), and value (HmL) are from Ken French’s website. Term and default are from the AQR website (data ends 12/2014).

As with Vanguard Wellesley, adding momentum and quality doesn’t improve the explanatory power (no increase in R^2).

The above results implies:

An average 65:35 stock:bond portfolio
Within stocks a -0.20 and 0.24 size and value load
Within bonds a 0.48 and 0.45 term and default load
Alpha was not statistically different from zero (the alpha estimate from 08/1929 to 12/2014 = -0.03 and not statistically different from zero).

Within equities, Vanguard Wellesley had a larger value tilt than Vanguard Wellington (0.51 vs. 0.24 value load).

Robert
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Re: Vanguard's Wellesley Income fund is incredible

Post by alec » Thu Feb 09, 2017 2:23 pm

Note that , unlike Wellesley, Wellington did not always have the same investment style/mandate as it did from 1978 - today. Here's Bogle explaining it all.

http://www.vanguard.com/bogle_site/sp20 ... onbth.html
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Re: Vanguard's Wellesley Income fund is incredible

Post by Sandtrap » Sat Feb 11, 2017 9:31 am

alec wrote:Note that , unlike Wellesley, Wellington did not always have the same investment style/mandate as it did from 1978 - today. Here's Bogle explaining it all.

http://www.vanguard.com/bogle_site/sp20 ... onbth.html
Thanks "alec".
Great article on "Wellington".
Perhaps makes a strong case for a passive index vs the SPOF (single point of failure) of a fund manager.?

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Re: Vanguard's Wellesley Income fund is incredible

Post by alec » Sat Feb 11, 2017 4:11 pm

Sandtrap wrote:
alec wrote:Note that , unlike Wellesley, Wellington did not always have the same investment style/mandate as it did from 1978 - today. Here's Bogle explaining it all.

http://www.vanguard.com/bogle_site/sp20 ... onbth.html
Thanks "alec".
Great article on "Wellington".
Perhaps makes a strong case for a passive index vs the SPOF (single point of failure) of a fund manager.?
Yup.
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Re: Vanguard's Wellesley Income fund is incredible

Post by S_Track » Wed Sep 27, 2017 7:53 am

Interesting post on Wellesley. Curious does the bond allocation of Wellesley hold anything in TIPS? Bob

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Re: Vanguard's Wellesley Income fund is incredible

Post by garlandwhizzer » Wed Sep 27, 2017 1:29 pm

Wellesley has been a great fund in terms of risk adjusted returns for a very long time. Like all other strategies, however, its returns are period dependent. A 60 bond/40 stock portfolio does quite well in an environment of ever decreasing interest rates which we had for the 34 years of 1982 - 2016, during which yields of 10 Treasuries decreased by about 90%. This is especially true if the choice of equity in the portfolio is 100% US stocks which outperformed INTL during that long time period, and also if the choice of US stocks during were dividend oriented. Dividend oriented strategies tend to outperform the market as a whole when interest rates are in secular decline. The opposite tends to happen when interest rates are rising as robust yields in safer bonds attracts income-oriented investors.

Backtesting makes Wellesley look great and part of the reason for that is that for much of its entire existence it has been operating in an economic macro-environment that it ideal for its strategy. Whether its stellar results relative to other strategies continue indefinitely into the future depends on, among other things, the future long term direction of interest rates, the future of dividend based equity strategies, and whether US equities continue to outperform INTL. I suspect that the future of Wellesley will not be as quite as rosy as its past. Having said that, clearly Wellesley's managers know what they're doing and are highly skilled. It is a great choice for conservative yield-oriented investors in terms or well-managed risk-adjusted return.

It's important to keep in mind that backtesting, no matter how strong, can be misleading in foretelling the future if major shifts in the macro-economic background occur.

Garland Whizzer

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Re: Vanguard's Wellesley Income fund is incredible

Post by Toons » Wed Sep 27, 2017 1:54 pm

garlandwhizzer wrote:
Wed Sep 27, 2017 1:29 pm
Wellesley has been a great fund in terms of risk adjusted returns for a very long time. Like all other strategies, however, its returns are period dependent. A 60 bond/40 stock portfolio does quite well in an environment of ever decreasing interest rates which we had for the 34 years of 1982 - 2016, during which yields of 10 Treasuries decreased by about 90%. This is especially true if the choice of equity in the portfolio is 100% US stocks which outperformed INTL during that long time period, and also if the choice of US stocks during were dividend oriented. Dividend oriented strategies tend to outperform the market as a whole when interest rates are in secular decline. The opposite tends to happen when interest rates are rising as robust yields in safer bonds attracts income-oriented investors.

Backtesting makes Wellesley look great and part of the reason for that is that for much of its entire existence it has been operating in an economic macro-environment that it ideal for its strategy. Whether its stellar results relative to other strategies continue indefinitely into the future depends on, among other things, the future long term direction of interest rates, the future of dividend based equity strategies, and whether US equities continue to outperform INTL. I suspect that the future of Wellesley will not be as quite as rosy as its past. Having said that, clearly Wellesley's managers know what they're doing and are highly skilled. It is a great choice for conservative yield-oriented investors in terms or well-managed risk-adjusted return.

It's important to keep in mind that backtesting, no matter how strong, can be misleading in foretelling the future if major shifts in the macro-economic background occur.

Garland Whizzer
Thanks for the post,insightful,,In a Nutshell,
Past performance does not guarantee......... :happy
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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 » Wed Sep 27, 2017 2:38 pm

bob_m10 wrote:
Wed Sep 27, 2017 7:53 am
Interesting post on Wellesley. Curious does the bond allocation of Wellesley hold anything in TIPS? Bob
To my knowledge, no.
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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 » Wed Sep 27, 2017 2:44 pm

garlandwhizzer wrote:
Wed Sep 27, 2017 1:29 pm
Wellesley has been a great fund in terms of risk adjusted returns for a very long time. Like all other strategies, however, its returns are period dependent. A 60 bond/40 stock portfolio does quite well in an environment of ever decreasing interest rates which we had for the 34 years of 1982 - 2016, during which yields of 10 Treasuries decreased by about 90%.
The idea that bonds have been in a long bull market is, to the best of my knowledge, false. The long-run performance of bonds (10 years or more) is determined almost entirely by bond yields, which were far better 30 years ago than now. A bond holder would rather be earning 10% than 2% yields (or anything less than 10%). So the idea that a drop from something like 10% to 8% or 5% or 2% in yields, all else being equal, has somehow benefited the bond holder in the long run is just not true.

In the current environment of slowly increasing rates, the increasing rates certainly put downward pressure on existing bonds, but investors also get the luxury of higher yields on all of their new bonds.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Happy2BeFree » Wed Sep 27, 2017 7:02 pm

willthrill81 wrote:
Wed Sep 27, 2017 2:44 pm
garlandwhizzer wrote:
Wed Sep 27, 2017 1:29 pm
Wellesley has been a great fund in terms of risk adjusted returns for a very long time. Like all other strategies, however, its returns are period dependent. A 60 bond/40 stock portfolio does quite well in an environment of ever decreasing interest rates which we had for the 34 years of 1982 - 2016, during which yields of 10 Treasuries decreased by about 90%.
The idea that bonds have been in a long bull market is, to the best of my knowledge, false. The long-run performance of bonds (10 years or more) is determined almost entirely by bond yields, which were far better 30 years ago than now. A bond holder would rather be earning 10% than 2% yields (or anything less than 10%). So the idea that a drop from something like 10% to 8% or 5% or 2% in yields, all else being equal, has somehow benefited the bond holder in the long run is just not true.

In the current environment of slowly increasing rates, the increasing rates certainly put downward pressure on existing bonds, but investors also get the luxury of higher yields on all of their new bonds.
This is what I have come to understand as well, but I've read so many posts on BH that have talked about the bull market for bonds over the past 30 years being a big part of Wellesley's (and bonds' in general) great returns. But is that not a fallacy? Don't bonds do better when interest rates are higher? Someone had a post recently about the effects on bonds (and balanced funds) when interest rates 1) stay steady, 2) rise gradually, 3) rise quickly (both at the start and end of a particular time frame), and 4) decrease. The worst outcome, IIRC, was rates rising quickly at the end of an investment time frame. The other scenarios weren't so dire, and over time seemed to benefit bonds.

So is there a huge misunderstanding about what a bull market for bonds really is?

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Re: Vanguard's Wellesley Income fund is incredible

Post by garlandwhizzer » Wed Sep 27, 2017 9:32 pm

willthrill81 wrote:
The idea that bonds have been in a long bull market is, to the best of my knowledge, false. The long-run performance of bonds (10 years or more) is determined almost entirely by bond yields, which were far better 30 years ago than now. A bond holder would rather be earning 10% than 2% yields (or anything less than 10%). So the idea that a drop from something like 10% to 8% or 5% or 2% in yields, all else being equal, has somehow benefited the bond holder in the long run is just not true.
It is generally accepted by experts that there was a 35 year bull market in bonds for the period in question. Ever lowering interest rates produce ever increasing principal values of older, higher yielding bonds especially longer maturity issues. This increasing principal value is in addition to the higher monthly income generated from older bonds. When bond yields go from 15% to 1.5% over 35 years there is a huge wave of principal appreciation all along the way. A bull market happens when things you own (bought earlier) appreciate and and get more valuable over time going forward. That is how I define a bull market. That happened for more than 3 decades in bonds from both principal appreciation and higher yields of older issued bonds. Higher yielding older bonds produce a higher carry factor return.

The other factor here is inflation. That 35 year period was also marked by ever decreasing inflation which went from 15% to 0%. Bonds do better when inflation consistently decreases. The opposite happens when there is ever increasing inflation which is why bonds had negative returns in real purchasing power terms from 1940 to 1980. Bond yields don't help much if inflation eats them up. In 1982 we were staring from high inflation, high yields which provided a 35 year glide path downward toward lower bond yields and inflation near zero. That was a nice ride for bonds and other income producing assets like dividend stocks.

Now we have stubbornly low inflation and stubbornly low bond yields. It is absurd IMO to expect a replay of bond returns going forward for the next 35 years. We're now in a period much like 1940, low inflation and low yields, which is when that long bond bear market in real terms started. We're is the opposite place from the sweet spot now and there's little room down until you hit zero yield which has actually happened in Europe and Japan. In my opinion bonds are likely to produce close to zero real inflation-adjusted returns over the next decade in contrast to the returns of the 3+ decades prior to that. Wellesley income fund with a 60% allocation to bonds is unlikely to shine as brightly in that scenario as it did in the past. It also concentrates on income producing high dividend stocks which are also in my view generously priced at present. I could be wrong but I believe that Wellesley's future success will not be as robust as in the past in spite of its excellent and highly skilled management. It is still a good choice for conservative, risk-averse income oriented investors.

Garland Whizzer

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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 » Wed Sep 27, 2017 9:59 pm

garlandwhizzer wrote:
Wed Sep 27, 2017 9:32 pm
willthrill81 wrote:
The idea that bonds have been in a long bull market is, to the best of my knowledge, false. The long-run performance of bonds (10 years or more) is determined almost entirely by bond yields, which were far better 30 years ago than now. A bond holder would rather be earning 10% than 2% yields (or anything less than 10%). So the idea that a drop from something like 10% to 8% or 5% or 2% in yields, all else being equal, has somehow benefited the bond holder in the long run is just not true.
It is generally accepted by experts that there was a 35 year bull market in bonds for the period in question. Ever lowering interest rates produce ever increasing principal values of older, higher yielding bonds especially longer maturity issues. This increasing principal value is in addition to the higher monthly income generated from older bonds. When bond yields go from 15% to 1.5% over 35 years there is a huge wave of principal appreciation all along the way. A bull market happens when things you own (bought earlier) appreciate and and get more valuable over time going forward. That is how I define a bull market. That happened for more than 3 decades in bonds from both principal appreciation and higher yields of older issued bonds. Higher yielding older bonds produce a higher carry factor return.

The other factor here is inflation. That 35 year period was also marked by ever decreasing inflation which went from 15% to 0%. Bonds do better when inflation consistently decreases. The opposite happens when there is ever increasing inflation which is why bonds had negative returns in real purchasing power terms from 1940 to 1980. Bond yields don't help much if inflation eats them up. In 1982 we were staring from high inflation, high yields which provided a 35 year glide path downward toward lower bond yields and inflation near zero. That was a nice ride for bonds and other income producing assets like dividend stocks.
I understand that principal values of bonds goes up when interest rates go down, but that comes at the cost of lower rates on the newer bonds. Most investors aren't buying long-term nominal bonds at one period in time and holding them to maturity.

I'm not saying that there's been no long-term positive effect for bond holders resulting from the decline in interest rates for nearly 40 years now. But I don't think the positive effect has been strong enough to really call it a "bull market," despite many referring to it as such. I would certainly be open to an empirical demonstration of it, but I've heard at least one bond 'expert' say that the ten year returns of bonds have historically been determined almost entirely by their starting yields. I'm not sure if he was referring to nominal or real yields though.
garlandwhizzer wrote:
Wed Sep 27, 2017 9:32 pm
Now we have stubbornly low inflation and stubbornly low bond yields. It is absurd IMO to expect a replay of bond returns going forward for the next 35 years. We're now in a period much like 1940, low inflation and low yields, which is when that long bond bear market in real terms started. We're is the opposite place from the sweet spot now and there's little room down until you hit zero yield which has actually happened in Europe and Japan. In my opinion bonds are likely to produce close to zero real inflation-adjusted returns over the next decade in contrast to the returns of the 3+ decades prior to that. Wellesley income fund with a 60% allocation to bonds is unlikely to shine as brightly in that scenario as it did in the past. It also concentrates on income producing high dividend stocks which are also in my view generously priced at present. I could be wrong but I believe that Wellesley's future success will not be as robust as in the past in spite of its excellent and highly skilled management. It is still a good choice for conservative, risk-averse income oriented investors.

Garland Whizzer
I doubt very much that bond returns will be the same going forward for the next 35 years. Jeremy Siegel noted that bond returns, especially in real terms over the long periods of time, have actually been less predictable than equity returns.

That being said, when I've examined Wellesley's performance in times of rising interest rates, it's performance has continued to be solid. I attribute this to the intermediate, rather than long, term of most of the fund's bond holdings and, possibly, the active management of its bond holdings. Another potential reason that would be somewhat controversial here is that the Fed typically does not raise interest rates in a poor economic environment. As such, the stock portion of the fund is likely to be doing well when the Fed believes it is appropriate to rate interest rates.
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Re: Vanguard's Wellesley Income fund is incredible

Post by JBTX » Wed Sep 27, 2017 11:32 pm

http://quotes.morningstar.com/chart/fun ... ture=en_US

If you set the above chart to "maximum", it takes you back to 1970. In actuality, the fund lagged the 30-50% equity benchmark until about 2000 on a cumulative basis. Since about 1980 it has beat the same benchmark. It appears the fund lagged that benchmark pretty badly between 1975-1980 for whatever reason - part of that could be its large cap equity nature, and large caps did pretty badly during that span.

I have a decent chunk in Wellington. I may consider moving some of my large cap equity funds to Wellesley s to take some equity risk out of my portfolio.

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Re: Vanguard's Wellesley Income fund is incredible

Post by S_Track » Thu Sep 28, 2017 5:31 am

I was playing around with Backtest Portfolio and if you pick the default Boglehead Three fund 80/20, it will be hard to find a time frame in the last 30 years where it beats Wellesley. 2009 to current is the only one I found. Must have been a good run for bonds the past 30 years unless I am not using the tool correctly.

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Re: Vanguard's Wellesley Income fund is incredible

Post by ignition » Thu Sep 28, 2017 6:46 am

willthrill81 wrote:
Wed Feb 08, 2017 11:26 am
Only my EF is currently in Wellesley. I'm 100% equities with my retirement assets, but that's because my risk tolerance is better than most. For those with a lower risk tolerance threshold, Wellesley could be a solid part of their portfolio. Remember that it's only trailed the S&P 500 (with no fees mind you) by .43% for nearly a half century. That's at least as good as a typical 80/20 portfolio would have done over the same period, but with far less volatility.
I think it will trail the S&P more in the future as bonds are unlikely to perform as well as they have in the past (2% yields vs 10% yields?)
willthrill81 wrote:
Wed Feb 08, 2017 11:26 am
If Wellesley had only been around for a decade, we wouldn't be talking about it here. The fact that they have had a stretch of such solid performance for nearly five decades makes it highly unlikely that it is only a statistical anomaly. They've got something good.
I did a backtest comparing 60% VBFMX (total bond market) and 40% VFINX (S&P 500) to Wellesley:

https://www.portfoliovisualizer.com/bac ... ion3_2=100

Wellesley performed better by 0.76% per year with a slightly lower SD. But I wonder what the results would be after taxes.

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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 » Thu Sep 28, 2017 10:56 am

If Wellesley has a current portfolio of intermediate bonds yielding say 3 pct just to keep it simple,they will continue to yield that until maturity.If interest rates rise,the fund will buy new bonds at a higher yield to replace the maturing bonds.How does this result in the bonds underperforming
by any significant amount?In my simplistic way of looking at it,I can see a slight underperformance unless rates go nuts.I could understand if the fund had a bunch of bonds yielding 8 to 10 pct but rates have been low for so long,do they currently even ave any yielding even 5 pct?
Last edited by hoops777 on Thu Sep 28, 2017 5:05 pm, edited 2 times in total.
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Re: Vanguard's Wellesley Income fund is incredible

Post by ignition » Thu Sep 28, 2017 12:00 pm

hoops777 wrote:
Thu Sep 28, 2017 10:56 am
If Wellesley has a current portfolio of intermediate bonds yielding say 3 pct just to keep it simple,they will continue to yield that until maturity.If interest rates rise,the fund will buy new bonds at a higher yield to replace the maturing bonds.How does this result in the bonds underperforming
by any significant amount?In my simplistic way of looking at it,I can see a slight underperformance unless rates go nuts.
If you hold until maturity your return will be 3%. If you sell before maturity your return will be less in a rising interest rate environment.

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Re: Vanguard's Wellesley Income fund is incredible

Post by CWRadio » Thu Sep 28, 2017 12:11 pm

I believe in Bill Bernstein advice, : When you’ve won the game, stop playing.
https://www.wsj.com/articles/how-to-tel ... 1421726456
If you wanted to have only one fund in retirement (take out 3% a year) would it be Wellesley?

Paul

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Re: Vanguard's Wellesley Income fund is incredible

Post by dbr » Thu Sep 28, 2017 12:58 pm

CWRadio wrote:
Thu Sep 28, 2017 12:11 pm
I believe in Bill Bernstein advice, : When you’ve won the game, stop playing.
https://www.wsj.com/articles/how-to-tel ... 1421726456
If you wanted to have only one fund in retirement (take out 3% a year) would it be Wellesley?

Paul
Not if you are going to stop playing.

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Jerry55
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Re: Vanguard's Wellesley Income fund is incredible

Post by Jerry55 » Thu Sep 28, 2017 8:46 pm

This has been a very interesting topic to read. I have my ROTH IRA in Wellesley @ 20% of my portfolio and I suspect I will never, ever change it for now. Wellington Taxable counterpart @ 10% for fun spending dividends & Cap Gains. TSP C, S and International (50/25/25) make up 50% of my portfolio, with the remaining 20% split between Dodge & Cox International and Capitol One 360 savings.

Of all the above, I am most happy with the way Wellesley has worked over the past 6 years or so, however, I understand that dances don't always last forever. I just hope that Wellesley (and Wellington) continue to perform adequately. I'm not shooting for the fences anymore, and if they return 6% instead of 8-10% compared to "good funds", I'm still happy. Retired in 2012, I find the word "Comfortable" one of my favorite words as far as investments go. :happy
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 » Thu Sep 28, 2017 10:56 pm

CWRadio wrote:
Thu Sep 28, 2017 12:11 pm
I believe in Bill Bernstein advice, : When you’ve won the game, stop playing.
https://www.wsj.com/articles/how-to-tel ... 1421726456
If you wanted to have only one fund in retirement (take out 3% a year) would it be Wellesley?

Paul
I don't really care for that advice since it seems to assume that investing is like gambling, where the odds are stacked against you. With good investing, the odds are in your favor.

I prefer Swedroe's advice: need, willingness, and ability.

Regarding having one fund in retirement, you could do far worse than Wellesley. Over its entire 47 year track record, you could have withdrawn about 5.5% of the fund's balance every one of those years and still had the same inflation adjusted principal as when you started.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 » Fri Sep 29, 2017 11:54 am

willthrill81 wrote:
Thu Sep 28, 2017 10:56 pm
CWRadio wrote:
Thu Sep 28, 2017 12:11 pm
I believe in Bill Bernstein advice, : When you’ve won the game, stop playing.
https://www.wsj.com/articles/how-to-tel ... 1421726456
If you wanted to have only one fund in retirement (take out 3% a year) would it be Wellesley?

Paul
I don't really care for that advice since it seems to assume that investing is like gambling, where the odds are stacked against you. With good investing, the odds are in your favor.

I prefer Swedroe's advice: need, willingness, and ability.

Regarding having one fund in retirement, you could do far worse than Wellesley. Over its entire 47 year track record, you could have withdrawn about 5.5% of the fund's balance every one of those years and still had the same inflation adjusted principal as when you started.
"Odds" has a meaning and it is not guaranteed.I think Bernstein's advice makes the most sense of any I have read,as well as being simple and to the point.No room for misinterpretation there.No matter how you sugarcoat it,investing in stocks is a form of gambling.The more you "cover" your losses with appropriate levels of fixed income,the less gambling it becomes.Bernstein says that you can invest 100 pct of your money in stocks that is not needed for your expenses if you wish.Makes perfect sense to me.
K.I.S.S........so easy to say so difficult to do.

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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 » Fri Sep 29, 2017 3:53 pm

hoops777 wrote:
Fri Sep 29, 2017 11:54 am
willthrill81 wrote:
Thu Sep 28, 2017 10:56 pm
CWRadio wrote:
Thu Sep 28, 2017 12:11 pm
I believe in Bill Bernstein advice, : When you’ve won the game, stop playing.
https://www.wsj.com/articles/how-to-tel ... 1421726456
If you wanted to have only one fund in retirement (take out 3% a year) would it be Wellesley?

Paul
I don't really care for that advice since it seems to assume that investing is like gambling, where the odds are stacked against you. With good investing, the odds are in your favor.

I prefer Swedroe's advice: need, willingness, and ability.

Regarding having one fund in retirement, you could do far worse than Wellesley. Over its entire 47 year track record, you could have withdrawn about 5.5% of the fund's balance every one of those years and still had the same inflation adjusted principal as when you started.
"Odds" has a meaning and it is not guaranteed.I think Bernstein's advice makes the most sense of any I have read,as well as being simple and to the point.No room for misinterpretation there.No matter how you sugarcoat it,investing in stocks is a form of gambling.The more you "cover" your losses with appropriate levels of fixed income,the less gambling it becomes.Bernstein says that you can invest 100 pct of your money in stocks that is not needed for your expenses if you wish.Makes perfect sense to me.
To each his own. But Jeremy Siegel has demonstrated that over longer-term periods (~20 years), fixed income investments like bonds have been a bigger gamble than equities in real dollars.

No matter the investment, including cash, odds are always at work. All roads carry risk.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 » Fri Sep 29, 2017 4:07 pm

willthrill81 wrote:
Fri Sep 29, 2017 3:53 pm
hoops777 wrote:
Fri Sep 29, 2017 11:54 am
willthrill81 wrote:
Thu Sep 28, 2017 10:56 pm
CWRadio wrote:
Thu Sep 28, 2017 12:11 pm
I believe in Bill Bernstein advice, : When you’ve won the game, stop playing.
https://www.wsj.com/articles/how-to-tel ... 1421726456
If you wanted to have only one fund in retirement (take out 3% a year) would it be Wellesley?

Paul
I don't really care for that advice since it seems to assume that investing is like gambling, where the odds are stacked against you. With good investing, the odds are in your favor.

I prefer Swedroe's advice: need, willingness, and ability.

Regarding having one fund in retirement, you could do far worse than Wellesley. Over its entire 47 year track record, you could have withdrawn about 5.5% of the fund's balance every one of those years and still had the same inflation adjusted principal as when you started.
"Odds" has a meaning and it is not guaranteed.I think Bernstein's advice makes the most sense of any I have read,as well as being simple and to the point.No room for misinterpretation there.No matter how you sugarcoat it,investing in stocks is a form of gambling.The more you "cover" your losses with appropriate levels of fixed income,the less gambling it becomes.Bernstein says that you can invest 100 pct of your money in stocks that is not needed for your expenses if you wish.Makes perfect sense to me.
To each his own. But Jeremy Siegel has demonstrated that over longer-term periods (~20 years), fixed income investments like bonds have been a bigger gamble than equities in real dollars.

No matter the investment, including cash, odds are always at work. All roads carry risk.
Yes and the "gamble" is quite different,even making an identical bet,depending upon your age and how much money you have.When you are approaching 70 and retired I "bet" you will view it differently unless you are very wealthy.Hope you make the very wealthy category :sharebeer
K.I.S.S........so easy to say so difficult to do.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Thai-Vagabond » Sat Oct 14, 2017 10:40 pm

The outperformance of Wellesley compared to other balanced funds may be attributed to value stocks outperforming growth stocks by nearly 200 basis points over long periods of time.
I’m a long time shareholder of Wellesley and just about the only negative thing I have to say is that it underperformed in real terms in the late 70s and early 80s for 3 or 4 years. This was offset later in the decade after Volker finished his work.

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Re: Vanguard's Wellesley Income fund is incredible

Post by ElecEel » Thu Dec 21, 2017 8:42 am

hey guys,

This is my first year owning Wellesley and I really do like it. Recently, I received my December dividend distribution along with LT and ST Capital gains. I've never received any capital gain distribution before.

1. How often does this happen and does it coincide with the drop in fund price?
2. Also, do you guys reinvest the capital gains?

Thanks.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Call_Me_Op » Thu Dec 21, 2017 8:46 am

willthrill81 wrote:
Mon Jan 30, 2017 11:08 am
Taylor Larimore wrote:willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.
Believe me, I totally get that argument.

However, we're not talking about an actively managed fund that's managed to beat the S&P 500 for five years or even a decade. VWINX has barely trailed the S&P 500 for nearly 50 years.
It sounds like you are saying that some active managers can consistently add value. I would suggest that Wellesley's good long-term performance is largely due to three factors: low expenses, the value premium, and a bond bull market. The third factor is no longer in place. The other two factors can be achieved using index funds - although I have no problem with Wellesley since its expenses are comparable to index funds.
Last edited by Call_Me_Op on Thu Dec 21, 2017 8:49 am, edited 1 time in total.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Vanguard's Wellesley Income fund is incredible

Post by azanon » Thu Dec 21, 2017 8:49 am

Call_Me_Op wrote:
Thu Dec 21, 2017 8:46 am
willthrill81 wrote:
Mon Jan 30, 2017 11:08 am
Taylor Larimore wrote:willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.
Believe me, I totally get that argument.

However, we're not talking about an actively managed fund that's managed to beat the S&P 500 for five years or even a decade. VWINX has barely trailed the S&P 500 for nearly 50 years.
It sounds like you are saying that some active managers can consistently add value. I would suggest that Wellesley's good long-term performance is largely due to two factors: low expenses and a bond bull market. The second factor is no longer in place.
I thought the same thing, until one day I got bored, went to portfolio visualizer, and tried every possible combination of Vanguard's Large-cap value funds and their intermediate-term bond funds, and at Wellesley's proportions, and the closest I could get was underperforming by more than 50 basis points. Don't take my word for it - try it yourself. Good luck beating it with mix-and-matches!
Last edited by azanon on Thu Dec 21, 2017 8:50 am, edited 1 time in total.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Call_Me_Op » Thu Dec 21, 2017 8:50 am

azanon wrote:
Thu Dec 21, 2017 8:49 am
Call_Me_Op wrote:
Thu Dec 21, 2017 8:46 am
willthrill81 wrote:
Mon Jan 30, 2017 11:08 am
Taylor Larimore wrote:willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.
Believe me, I totally get that argument.

However, we're not talking about an actively managed fund that's managed to beat the S&P 500 for five years or even a decade. VWINX has barely trailed the S&P 500 for nearly 50 years.
It sounds like you are saying that some active managers can consistently add value. I would suggest that Wellesley's good long-term performance is largely due to two factors: low expenses and a bond bull market. The second factor is no longer in place.
I thought the same thing, until one day I got bored, went to portfolio visualizer, and tried every possible combination of Vanguard's Large-cap value funds and their intermediate-term bond funds, and at Wellesley's proportions, and the closest I could get was underperforming by more than 50 basis points.
See above. I initially forgot to mention that value factor.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Vanguard's Wellesley Income fund is incredible

Post by azanon » Thu Dec 21, 2017 8:51 am

Call_Me_Op wrote:
Thu Dec 21, 2017 8:50 am
azanon wrote:
Thu Dec 21, 2017 8:49 am
Call_Me_Op wrote:
Thu Dec 21, 2017 8:46 am
willthrill81 wrote:
Mon Jan 30, 2017 11:08 am
Taylor Larimore wrote:willthrill81:

There is a strong temptation to invest in a fund that has done well in the past. However, times change and managers change. Almost without exception, top-performing funds eventually revert to the mean or below.
Believe me, I totally get that argument.

However, we're not talking about an actively managed fund that's managed to beat the S&P 500 for five years or even a decade. VWINX has barely trailed the S&P 500 for nearly 50 years.
It sounds like you are saying that some active managers can consistently add value. I would suggest that Wellesley's good long-term performance is largely due to two factors: low expenses and a bond bull market. The second factor is no longer in place.
I thought the same thing, until one day I got bored, went to portfolio visualizer, and tried every possible combination of Vanguard's Large-cap value funds and their intermediate-term bond funds, and at Wellesley's proportions, and the closest I could get was underperforming by more than 50 basis points.
See above. I initially forgot to mention that value factor.
Right. But then you still have the 50-100bp of extra performance beyond even those things to explain.

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Re: Vanguard's Wellesley Income fund is incredible

Post by john4546 » Thu Dec 21, 2017 8:53 am

Recency bias and performance chasing can be vey tempting and too irresistible to many. But anyone can be a stock and bond picking genius in a bull market.

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Re: Vanguard's Wellesley Income fund is incredible

Post by azanon » Thu Dec 21, 2017 8:55 am

john4546 wrote:
Thu Dec 21, 2017 8:53 am
Recency bias and performance chasing can be vey tempting and too irresistible to many. But anyone can be a stock and bond picking genius in a bull market.
Recency bias and performance chasing for 47 years? At some point, some other explanation than just, got lucky, is warranted. I didn't count the total number of combinations of LC Value, IT Bond i tried at visualizer, but it was a lot. All of them failed to beat it.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Call_Me_Op » Thu Dec 21, 2017 9:03 am

azanon wrote:
Thu Dec 21, 2017 8:51 am
Call_Me_Op wrote:
Thu Dec 21, 2017 8:50 am
azanon wrote:
Thu Dec 21, 2017 8:49 am
Call_Me_Op wrote:
Thu Dec 21, 2017 8:46 am
willthrill81 wrote:
Mon Jan 30, 2017 11:08 am


Believe me, I totally get that argument.

However, we're not talking about an actively managed fund that's managed to beat the S&P 500 for five years or even a decade. VWINX has barely trailed the S&P 500 for nearly 50 years.
It sounds like you are saying that some active managers can consistently add value. I would suggest that Wellesley's good long-term performance is largely due to two factors: low expenses and a bond bull market. The second factor is no longer in place.
I thought the same thing, until one day I got bored, went to portfolio visualizer, and tried every possible combination of Vanguard's Large-cap value funds and their intermediate-term bond funds, and at Wellesley's proportions, and the closest I could get was underperforming by more than 50 basis points.
See above. I initially forgot to mention that value factor.
Right. But then you still have the 50-100bp of extra performance beyond even those things to explain.
I cannot claim that the managers did not add any value to Wellesley over the years. However, I will point-out that it is much harder to add value today (through active management). So perhaps there was a small alpha to Wellesley in the past. That does not translate to an alpha in the future.

Note that a 40/60 mix of mid-cap value/intermediate treasury would have beaten Wellesley from 1972 to present. Use of small-cap value would have been better still.
Last edited by Call_Me_Op on Thu Dec 21, 2017 9:08 am, edited 2 times in total.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

azanon
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Re: Vanguard's Wellesley Income fund is incredible

Post by azanon » Thu Dec 21, 2017 9:06 am

I'm confused by two things; Why did you use mid-cap value when Wellesley is large cap value and 2. Wellesley averages more in the mid 30% equities, not near its cap of 40% for the entire measured period, so why did you go with 40%?

My point was saying Wellesley has unexplained alpha vs. a comparable benchmark. But sure, if you outright change the asset classes, then of course you can beat Wellesley. Even Wellington beats Wellesley, but that's a meaningless point.

BTW, what's the Sharpe ratio on that out-peformance - or more precisely, how much lower is the Sharpe ratio? :D

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Re: Vanguard's Wellesley Income fund is incredible

Post by Call_Me_Op » Thu Dec 21, 2017 9:09 am

azanon wrote:
Thu Dec 21, 2017 9:06 am
I'm confused by two things; Why did you use mid-cap value when Wellesley is large cap value and 2. Wellesley averages more in the mid 30% equities, not near its cap of 40% for the entire measured period, so why did you go with 40%?

My point was saying Wellesley has unexplained alpha vs. a comparable benchmark. But sure, if you outright change the asset classes, then of course you can beat Wellesley. Even Wellington beats Wellesley, but that's a meaningless point.

BTW, what's the Sharpe ratio on that out-peformance - or more precisely, how much lower is the Sharpe ratio? :D
See my comment above. I do not think any alpha from the 1970's and 1980's is "unexplained." It is much harder to add alpha today - just ask Buffet.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Vanguard's Wellesley Income fund is incredible

Post by azanon » Thu Dec 21, 2017 9:17 am

Call_Me_Op wrote:
Thu Dec 21, 2017 9:09 am
azanon wrote:
Thu Dec 21, 2017 9:06 am
I'm confused by two things; Why did you use mid-cap value when Wellesley is large cap value and 2. Wellesley averages more in the mid 30% equities, not near its cap of 40% for the entire measured period, so why did you go with 40%?

My point was saying Wellesley has unexplained alpha vs. a comparable benchmark. But sure, if you outright change the asset classes, then of course you can beat Wellesley. Even Wellington beats Wellesley, but that's a meaningless point.

BTW, what's the Sharpe ratio on that out-peformance - or more precisely, how much lower is the Sharpe ratio? :D
See my comment above. I do not think any alpha from the 1970's and 1980's is "unexplained." It is much harder to add alpha today - just ask Buffet.
Now that I can agree with, that it's probably not easy to generate alpha. That's probably the primary reason I don't buy individual securities, and also why I'm only willing to pay a very modest premium for active management. I wouldn't even consider an active that I don't have good enough reason to believe that it is likely to outperform an index, net of fees.

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Re: Vanguard's Wellesley Income fund is incredible

Post by Call_Me_Op » Thu Dec 21, 2017 9:20 am

azanon wrote:
Thu Dec 21, 2017 9:17 am
Call_Me_Op wrote:
Thu Dec 21, 2017 9:09 am
azanon wrote:
Thu Dec 21, 2017 9:06 am
I'm confused by two things; Why did you use mid-cap value when Wellesley is large cap value and 2. Wellesley averages more in the mid 30% equities, not near its cap of 40% for the entire measured period, so why did you go with 40%?

My point was saying Wellesley has unexplained alpha vs. a comparable benchmark. But sure, if you outright change the asset classes, then of course you can beat Wellesley. Even Wellington beats Wellesley, but that's a meaningless point.

BTW, what's the Sharpe ratio on that out-peformance - or more precisely, how much lower is the Sharpe ratio? :D
See my comment above. I do not think any alpha from the 1970's and 1980's is "unexplained." It is much harder to add alpha today - just ask Buffet.
Now that I can agree with, that it's probably not easy to generate alpha. That's probably the primary reason I don't buy individual securities. I wouldn't even consider an active that I don't have good enough reason to believe that it is likely to outperform an index, net of fees.
I think we both agree. I have no problem at all with Wellesley, but I prefer the control over the asset classes - so I do index funds. I think with any active fund, there is some manager risk, but certainly relatively small with Vanguard.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Vanguard's Wellesley Income fund is incredible

Post by john4546 » Thu Dec 21, 2017 9:25 am

Last edited by john4546 on Thu Dec 21, 2017 9:28 am, edited 1 time in total.

azanon
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Re: Vanguard's Wellesley Income fund is incredible

Post by azanon » Thu Dec 21, 2017 9:26 am

Call_Me_Op wrote:
Thu Dec 21, 2017 9:20 am
azanon wrote:
Thu Dec 21, 2017 9:17 am
Call_Me_Op wrote:
Thu Dec 21, 2017 9:09 am
azanon wrote:
Thu Dec 21, 2017 9:06 am
I'm confused by two things; Why did you use mid-cap value when Wellesley is large cap value and 2. Wellesley averages more in the mid 30% equities, not near its cap of 40% for the entire measured period, so why did you go with 40%?

My point was saying Wellesley has unexplained alpha vs. a comparable benchmark. But sure, if you outright change the asset classes, then of course you can beat Wellesley. Even Wellington beats Wellesley, but that's a meaningless point.

BTW, what's the Sharpe ratio on that out-peformance - or more precisely, how much lower is the Sharpe ratio? :D
See my comment above. I do not think any alpha from the 1970's and 1980's is "unexplained." It is much harder to add alpha today - just ask Buffet.
Now that I can agree with, that it's probably not easy to generate alpha. That's probably the primary reason I don't buy individual securities. I wouldn't even consider an active that I don't have good enough reason to believe that it is likely to outperform an index, net of fees.
I think we both agree. I have no problem at all with Wellesley, but I prefer the control over the asset classes - so I do index funds. I think with any active fund, there is some manager risk, but certainly relatively small with Vanguard.
To be fair, I want the asset classes mostly controlled too. Specifically, as a shareholder, I do expect them to stay within their fairly tight guardrails of stocks vs. bonds.

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Re: Vanguard's Wellesley Income fund is incredible

Post by FactualFran » Thu Dec 21, 2017 3:56 pm

ElecEel wrote:
Thu Dec 21, 2017 8:42 am
This is my first year owning Wellesley and I really do like it. Recently, I received my December dividend distribution along with LT and ST Capital gains. I've never received any capital gain distribution before.

1. How often does this happen and does it coincide with the drop in fund price?
2. Also, do you guys reinvest the capital gains?
The Vanguard Wellesley Income fund has had capital gain distribution during about half its years. The most recent years without a capital gain distribution were 2009 through 2011. The price drops as a result of distributions made by the fund.

I reinvest capital gains because doing so fits in with why I invest in the fund.

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Re: Vanguard's Wellesley Income fund is incredible

Post by friar1610 » Thu Dec 21, 2017 4:30 pm

Boy - I am really torn. All of our IRAs are in Total Bond fund and I want to add just a wee slice of equities (but not so much that our overall AA is thrown out of kilter and not make things too complicated for my wife to deal with if I depart first). The two things I have under consideration are:

- Life Cycle Income (VASIX) at 20/80
- half Wellesley and half Total Bond for about a 17/83 AA

The first would be completely hands-off. The latter would take one phone call a year to rebalance.
Friar1610

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