Vanguard's Wellesley Income fund is incredible

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GaryA505
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Re: Vanguard's Wellesley Income fund is incredible

Post by GaryA505 »

Robot Monster wrote: Mon Jul 20, 2020 10:39 am
GaryA505 wrote: Mon Jul 20, 2020 10:12 am
Robot Monster wrote: Sun Jul 19, 2020 1:41 pm
GaryA505 wrote: Sat Jul 18, 2020 6:39 pm Going forward, I doubt it can repeat it's performance, especially considering the 40 year bull market in bonds is near, or at, an end.
The bond bull market could continue to flourish if we descend into negative yield territory. Who is to say that's not where we are headed?
How far negative could we go? -1%, -5%, -10%? No matter how long they go, eventually they will stop going down.
Yes, but eventually is not necessarily "near, or at, an end" (quoting from GaryA505 above).

Edit: Oh, sorry, that's you. So observant I am.
So you think they could go to -5% or -10%?
Robot Monster
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

GaryA505 wrote: Mon Jul 20, 2020 10:42 am
Robot Monster wrote: Mon Jul 20, 2020 10:39 am
GaryA505 wrote: Mon Jul 20, 2020 10:12 am
Robot Monster wrote: Sun Jul 19, 2020 1:41 pm
GaryA505 wrote: Sat Jul 18, 2020 6:39 pm Going forward, I doubt it can repeat it's performance, especially considering the 40 year bull market in bonds is near, or at, an end.
The bond bull market could continue to flourish if we descend into negative yield territory. Who is to say that's not where we are headed?
How far negative could we go? -1%, -5%, -10%? No matter how long they go, eventually they will stop going down.
Yes, but eventually is not necessarily "near, or at, an end" (quoting from GaryA505 above).

Edit: Oh, sorry, that's you. So observant I am.
So you think they could go to -5% or -10%?
We had deflation in the early 1930's of -6.4%, -9.3%, -10.3%. If we had those inflation numbers, who's to say we couldn't have -5% or -10% interest?

Source:
https://www.thebalance.com/u-s-inflatio ... -3306093Oh
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GaryA505
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Re: Vanguard's Wellesley Income fund is incredible

Post by GaryA505 »

Robot Monster wrote: Mon Jul 20, 2020 10:47 am
GaryA505 wrote: Mon Jul 20, 2020 10:42 am
Robot Monster wrote: Mon Jul 20, 2020 10:39 am
GaryA505 wrote: Mon Jul 20, 2020 10:12 am
Robot Monster wrote: Sun Jul 19, 2020 1:41 pm

The bond bull market could continue to flourish if we descend into negative yield territory. Who is to say that's not where we are headed?
How far negative could we go? -1%, -5%, -10%? No matter how long they go, eventually they will stop going down.
Yes, but eventually is not necessarily "near, or at, an end" (quoting from GaryA505 above).

Edit: Oh, sorry, that's you. So observant I am.
So you think they could go to -5% or -10%?
We had deflation in the early 1930's of -6.4%, -9.3%, -10.3%. If we had those inflation numbers, who's to say we couldn't have -5% or -10% interest?

Source:
https://www.thebalance.com/u-s-inflatio ... -3306093Oh
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
tibbitts
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Re: Vanguard's Wellesley Income fund is incredible

Post by tibbitts »

Robot Monster wrote: Mon Jul 20, 2020 9:42 am
tibbitts wrote: Sun Jul 19, 2020 4:49 pm
bluewater23t wrote: Sun Jul 19, 2020 4:40 pm
tibbitts wrote: Sun Jul 19, 2020 2:21 pm
bluewater23t wrote: Sun Jul 19, 2020 10:24 am

as do I. you can buy the investor class share, but not the admiral, for $75 transaction fee.
You have to be a true believer to own it under those conditions.
really? hopefully you're joking. a $75 one time fee is nothing.
If I invest in a Vanguard fund where I can't meet the admiral minimum I limit myself to maybe $5k. And with that low an amount, yes the percentage hit from $75 would annoy me. I've paid more than that in purchase fees for some Vanguard funds, but I can almost justify that (the purchase half - the redemption fees are a tougher sell to myself) with the thought that maybe it will pay back if I hold long enough (and enough other people buy and sell.) If I were to buy enough shares vs. my usual $5k-ish, yes the expense ratio difference would annoy me.
You should start a gofundme page to cover that fee. If someone can get $55,000 for a potato salad, you can get $75 for that annoyance. I'll pony up $5.
I could, but the raiding the college fund to buy a laptop story trumps mine, and will suck up all the Boglehead sympathy contributions.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

GaryA505 wrote: Mon Jul 20, 2020 10:50 am
Robot Monster wrote: Mon Jul 20, 2020 10:47 am
GaryA505 wrote: Mon Jul 20, 2020 10:42 am
Robot Monster wrote: Mon Jul 20, 2020 10:39 am
GaryA505 wrote: Mon Jul 20, 2020 10:12 am

How far negative could we go? -1%, -5%, -10%? No matter how long they go, eventually they will stop going down.
Yes, but eventually is not necessarily "near, or at, an end" (quoting from GaryA505 above).

Edit: Oh, sorry, that's you. So observant I am.
So you think they could go to -5% or -10%?
We had deflation in the early 1930's of -6.4%, -9.3%, -10.3%. If we had those inflation numbers, who's to say we couldn't have -5% or -10% interest?

Source:
https://www.thebalance.com/u-s-inflatio ... -3306093Oh
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
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vineviz
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Re: Vanguard's Wellesley Income fund is incredible

Post by vineviz »

Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
GaryA505
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Re: Vanguard's Wellesley Income fund is incredible

Post by GaryA505 »

vineviz wrote: Mon Jul 20, 2020 12:36 pm
Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
But how does that work out with a fund like Vanguard Total Bond VBMFX/VBTLX that holds a wide range of maturities?
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

GaryA505 wrote: Mon Jul 20, 2020 12:55 pm
vineviz wrote: Mon Jul 20, 2020 12:36 pm
Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
But how does that work out with a fund like Vanguard Total Bond VBMFX/VBTLX that holds a wide range of maturities?
You tell us. Total Bond has an average duration of 6.4 years. If interest rates increase by 1%, what price change (approximately) does that fund undergo? If you're unsure, this will shed some light...
https://investor.vanguard.com/insights/ ... s-duration
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vineviz
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Re: Vanguard's Wellesley Income fund is incredible

Post by vineviz »

GaryA505 wrote: Mon Jul 20, 2020 12:55 pm But how does that work out with a fund like Vanguard Total Bond VBMFX/VBTLX that holds a wide range of maturities?
It works out fine: Vanguard publishes the effective duration of its funds and VBMFX has an average effective duration of 6.2 years. If that matches your investment time horizon (i.e. your average future expense is 6 years from now) then your interest rate risk is minimal. If your expenses are much more distant than that then Vanguard Total Bond presents you with much more interest rate risk.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 »

vineviz wrote: Mon Jul 20, 2020 12:36 pm
Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
So if I buy VBILX I have no worries about losing money if I stick to the duration? Really?
K.I.S.S........so easy to say so difficult to do.
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vineviz
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Re: Vanguard's Wellesley Income fund is incredible

Post by vineviz »

hoops777 wrote: Mon Jul 20, 2020 10:49 pm
vineviz wrote: Mon Jul 20, 2020 12:36 pm
Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
So if I buy VBILX I have no worries about losing money if I stick to the duration? Really?
No, not really. That’s not what I said.

What I said was that investors who keep their bond duration matched to their time horizon have eliminated their interest rate risk.

That matching can’t be done using VBILX alone (except at one brief moment in time) but it could be done using that fund in combination with some other fund.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Tom_T
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Re: Vanguard's Wellesley Income fund is incredible

Post by Tom_T »

Another thing to remember is that it's an oversimplification to model what would happen "if interest rates rise 1%." For a fund like Total Bond, what does that mean? Which rates have risen 1%? The ten-year? TBM has a range of maturities.

I did a little homework to find a recent example of an interest rate rise. The ten-year rose from 1.46% in July 2016 to 3.16% by February 2018. That's a pretty big jump, right? 1.7 points. More than double! So, what happened? The NAV of TBM dropped from 11.12 to 10.57 over that span -- 4.9% in 18 months. And if you look at total return, there was a gain in 2016 and a very slight loss in 2018.

The back-of-the-envelope calculation we all use would have said that NAV would fall 6.4% for every one-point rise, which equates to a loss of over 10% for this example.

Of course this is one example, but the point is that it's hard to model a "one percent rate increase" for a fund like TBM.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

vineviz wrote: Tue Jul 21, 2020 6:27 am
hoops777 wrote: Mon Jul 20, 2020 10:49 pm
vineviz wrote: Mon Jul 20, 2020 12:36 pm
Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
So if I buy VBILX I have no worries about losing money if I stick to the duration? Really?
No, not really. That’s not what I said.

What I said was that investors who keep their bond duration matched to their time horizon have eliminated their interest rate risk.

That matching can’t be done using VBILX alone (except at one brief moment in time) but it could be done using that fund in combination with some other fund.
Could you break this down a little bit more? Maybe give an example, or something? Like,

Billy has $10K to invest that he doesn't plan on touching for 6.5 years, so, in order to eliminate interest rates risk, he invests in VBILX and...?
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vineviz
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Re: Vanguard's Wellesley Income fund is incredible

Post by vineviz »

Robot Monster wrote: Tue Jul 21, 2020 8:31 am
Could you break this down a little bit more? Maybe give an example, or something? Like,

Billy has $10K to invest that he doesn't plan on touching for 6.5 years, so, in order to eliminate interest rates risk, he invests in VBILX and...?
I don't want to further derail this thread about Wellesley, so if you ask me here I'll give an example.
Last edited by vineviz on Tue Jul 21, 2020 9:08 am, edited 2 times in total.
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Robot Monster
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

vineviz wrote: Tue Jul 21, 2020 8:50 am
Robot Monster wrote: Tue Jul 21, 2020 8:31 am
Could you break this down a little bit more? Maybe give an example, or something? Like,

Billy has $10K to invest that he doesn't plan on touching for 6.5 years, so, in order to eliminate interest rates risk, he invests in VBILX and...?
I don't want to further derail this thread about Wellesley, so if you ask me [urlhttps://www.bogleheads.org/forum/viewtopic.php?t=318412]here[/url] I'll give an example.
Appreciate that. I have to admit, just reading the first post, that though it may be true "most investors are familiar with the concept of a glide path" I never have.
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protagonist
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Re: Vanguard's Wellesley Income fund is incredible

Post by protagonist »

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. The statistical likelihood of that happening due to luck is extraordinarily low. Based on a recent study, fewer than 18% of active funds beat the S&P 500 for the last decade. So if we use that probability over 50 years, the likelihood of a given fund beating the S&P 500 would be approximately 2 in 10,000. VWINX certainly didn't beat the S&P 500, but it hasn't trailed it by much, far less than most actively managed funds.

I also understand the argument that VWINX has been the recipient of a long bull run in the bond market. That makes some sense, but it doesn't hold up when you compare VWINX's performance against the S&P 500 during periods of rising rates. For instance, between 10/1/1986-2/28/1989, the Fed funds rate increased from just under 6.0 to just over 10.0. A $10k investment in both would have been valued at $11,982 for VWINX at the end of that period and $12,475 for VFIAX. Trailing performance, yes, but not by much.

Between 1/1/1994-4/1/1995, the Fed funds rate increased from 3.0 to just over 6.0. A $10k investment in both would have been valued at $10,241 for VWINX at the end of that period and $11,100 for VFIAX. That's significant difference, but that was also the beginning of one of the biggest bull runs in stock market history. Had you held both until 2002, their values would have been the same.

Between 1/1/1994-4/1/1995, the Fed funds rate increased from 1.0 to just over 5.0. A $10k investment in both would have been valued at $11,637 for VWINX at the end of that period and $11,784 for VFIAX, nearly equivalent.

So even during most periods of rising interest rates, VWINX still experienced consistent performance.

It's certainly not a panacea, one-size-fits-all fund. But I firmly believe that, based on decades of performance, it's a great fund for many investors.
How did VWINX perform between late 1976 and late 1981 when interest rates (at least on Treasuries) went through the roof? *just curious*
Also, how would 60% similar bond index funds combined with 40% S+P 500 index funds have performed compared with VWINX since 1970, and during the time intervals you quote? Would they have been significantly different? *also just curious*

It has been a long and VERY exceptional bull market for bonds since 1981. The most exceptional ever.
Robot Monster
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

protagonist wrote: Tue Jul 21, 2020 9:24 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. The statistical likelihood of that happening due to luck is extraordinarily low. Based on a recent study, fewer than 18% of active funds beat the S&P 500 for the last decade. So if we use that probability over 50 years, the likelihood of a given fund beating the S&P 500 would be approximately 2 in 10,000. VWINX certainly didn't beat the S&P 500, but it hasn't trailed it by much, far less than most actively managed funds.

I also understand the argument that VWINX has been the recipient of a long bull run in the bond market. That makes some sense, but it doesn't hold up when you compare VWINX's performance against the S&P 500 during periods of rising rates. For instance, between 10/1/1986-2/28/1989, the Fed funds rate increased from just under 6.0 to just over 10.0. A $10k investment in both would have been valued at $11,982 for VWINX at the end of that period and $12,475 for VFIAX. Trailing performance, yes, but not by much.

Between 1/1/1994-4/1/1995, the Fed funds rate increased from 3.0 to just over 6.0. A $10k investment in both would have been valued at $10,241 for VWINX at the end of that period and $11,100 for VFIAX. That's significant difference, but that was also the beginning of one of the biggest bull runs in stock market history. Had you held both until 2002, their values would have been the same.

Between 1/1/1994-4/1/1995, the Fed funds rate increased from 1.0 to just over 5.0. A $10k investment in both would have been valued at $11,637 for VWINX at the end of that period and $11,784 for VFIAX, nearly equivalent.

So even during most periods of rising interest rates, VWINX still experienced consistent performance.

It's certainly not a panacea, one-size-fits-all fund. But I firmly believe that, based on decades of performance, it's a great fund for many investors.
How did VWINX perform between late December 1976 and Sept-Oct 1981 when interest rates (at least on 10 year Treasuries) went through the roof? *curious*
Using Morningstar I find that from Dec '76-Sept '81, $17,226 turned into $22,446.
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hoops777
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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 »

vineviz wrote: Tue Jul 21, 2020 6:27 am
hoops777 wrote: Mon Jul 20, 2020 10:49 pm
vineviz wrote: Mon Jul 20, 2020 12:36 pm
Robot Monster wrote: Mon Jul 20, 2020 10:55 am
GaryA505 wrote: Mon Jul 20, 2020 10:50 am
And if rates get down to -5% or -10%, then what after that? I would expect a bloodbath for bonds.
Not if bond yields rise very slowly, it will just be a slow bleed. Bonds are always primed for a bloodbath if rates shoot up.
And remember, investors who keep the duration of their bonds matched to their investment time horizon don't have to worry about ANY of these hypothetical scenarios because they're not taking any interest rate risk if they do so.
So if I buy VBILX I have no worries about losing money if I stick to the duration? Really?
No, not really. That’s not what I said.

What I said was that investors who keep their bond duration matched to their time horizon have eliminated their interest rate risk.

That matching can’t be done using VBILX alone (except at one brief moment in time) but it could be done using that fund in combination with some other fund.
Sorry about that. There were comments about bond bloodbaths within the quote so I read more into it.
K.I.S.S........so easy to say so difficult to do.
GaryA505
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Re: Vanguard's Wellesley Income fund is incredible

Post by GaryA505 »

I'm wondering if the bond part of Wellesley is always intermediate-term. Is this part of their plan? Not to digress, but I'm also wondering if there are any "balanced" funds that use short-term bonds instead of intermediate term.
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Re: Vanguard's Wellesley Income fund is incredible

Post by sycamore »

GaryA505 wrote: Tue Jul 21, 2020 12:00 pm I'm wondering if the bond part of Wellesley is always intermediate-term. Is this part of their plan? Not to digress, but I'm also wondering if there are any "balanced" funds that use short-term bonds instead of intermediate term.
I don't track Wellesley's portfolio. Their current policy is at https://investor.vanguard.com/mutual-fu ... olio/vwinx, click on "Strategy and Policy". I don't see anything about what duration they aim for; I assume that means it's entirely up to the manager's discretion. Unlike with Vanguard's bond funds, that portfolio page for Wellesley does not report "Distribution by effective maturity". VG does report an average effective duration of 10.0 years and average maturity of 8.0 years.
Investment strategy

The fund invests approximately 60% to 65% of its assets in investment-grade corporate, U.S. Treasury, and government agency bonds, as well as mortgage-backed securities. The remaining 35% to 40% of fund assets are invested in common stocks of companies that have a history of above-average dividends or expectations of increasing dividends.

Investment policy

The fund typically invests a limited portion, up to 25%, of its assets in foreign securities. Foreign securities may be traded on U.S. or foreign markets.
The fund may invest, to a limited extent, in derivatives. Investments in derivatives may subject the fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes. The fund will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.
The fund may invest in securities that are convertible into common stocks, as well as invest modestly in collateralized mortgage obligations (CMOs).
The fund may enter into forward foreign currency exchange contracts, which are types of derivative contracts. A forward foreign currency exchange contract is an agreement to buy or sell a country’s currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date.
The funds daily cash balance may be invested in one or more Vanguard CMT funds, which are very low-cost money market funds. When investing in a Vanguard CMT fund, the fund bears its proportionate share of the at-cost expenses of the CMT fund in which it invests.
The fund may temporarily depart from its normal investment policies and strategies when doing so is believed to be in the fund’s best interest, so long as the alternative is consistent with the fund’s investment objective. For instance, the fund may invest beyond the normal limits in derivatives or ETFs that are consistent with the fund’s objective when those instruments are more favorably priced or provide needed liquidity, as might be the case when the fund is transitioning assets from one advisor to another or receives large cash flows that it cannot prudently invest immediately.
S_Track
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Re: Vanguard's Wellesley Income fund is incredible

Post by S_Track »

Hello All,

Morningstar's The Long View Podcast talked with Two of Wellesley's fund managers in their recent episode.

"Two Wellington Management portfolio managers discuss how they manage risk at Vanguard Wellesley Income, why they’ve taken a liking to busted growth stocks, and where they’re finding durable sources of income."

https://www.morningstar.com/podcasts/the-long-view/75
FactualFran
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Re: Vanguard's Wellesley Income fund is incredible

Post by FactualFran »

protagonist wrote: Tue Jul 21, 2020 9:24 am
How did VWINX perform between late 1976 and late 1981 when interest rates (at least on Treasuries) went through the roof? *just curious*
Also, how would 60% similar bond index funds combined with 40% S+P 500 index funds have performed compared with VWINX since 1970, and during the time intervals you quote? Would they have been significantly different? *also just curious*

It has been a long and VERY exceptional bull market for bonds since 1981. The most exceptional ever.
For 1977 through 1981 the Wellesley Income fund had an annualized return of 6.88% while an annually re-balanced portfolio of 40% S&P 500 index and 60% 10-year Treasury securities had an annualized return of 4.02%.

For 1971 through 2019 the Wellesley Income fund had an annualized return of 9.67% while an annually re-balanced portfolio of 40% S&P 500 index and 60% 10-year Treasury securities had an annualized return of 8.83%.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

FactualFran wrote: Thu Sep 24, 2020 5:39 pm
protagonist wrote: Tue Jul 21, 2020 9:24 am
How did VWINX perform between late 1976 and late 1981 when interest rates (at least on Treasuries) went through the roof? *just curious*
For 1977 through 1981 the Wellesley Income fund had an annualized return of 6.88% while an annually re-balanced portfolio of 40% S&P 500 index and 60% 10-year Treasury securities had an annualized return of 4.02%.
I ran a similar portfolio through a backtest for that time period and came up with annualized return of 3.96% but inflation adjusted it was -5.54%. See:
https://www.portfoliovisualizer.com/bac ... tion2_1=60
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Re: Vanguard's Wellesley Income fund is incredible

Post by GaryA505 »

One thing that I don't like about Wellesley is that it doesn't have any inflation-protected component (as far as I know). Vanguard Target Retirement has about 17% short-term TIPS.

You could do this:
40% VTI/VTSMX/VTSAX Vanguard Total Stock
40% BIV/VBILX Vanguard Interm-Term Bond Index
20% VTIP/VTIPX/VTAPX Vanguard Short-Term Inflation-Protected Securities

And get about the same past performance with some TIPS in the mix.
Last edited by GaryA505 on Thu Sep 24, 2020 7:16 pm, edited 1 time in total.
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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 »

GaryA505 wrote: Thu Sep 24, 2020 7:09 pm One thing that I don't like about Wellesley is that it doesn't have any inflation-protected component (as far as I know). Vanguard Target Retirement has about 17% short-term TIPS.
TIPS didn't exist for the first 20+ years of the fund's history. The managers have apparently determined that they aren't warranted for the fund. I don't know of any all-in-one funds that use TIPS aside from target date funds.
Last edited by willthrill81 on Thu Sep 24, 2020 7:17 pm, edited 1 time in total.
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Re: Vanguard's Wellesley Income fund is incredible

Post by GaryA505 »

willthrill81 wrote: Thu Sep 24, 2020 7:15 pm
GaryA505 wrote: Thu Sep 24, 2020 7:09 pm One thing that I don't like about Wellesley is that it doesn't have any inflation-protected component (as far as I know). Vanguard Target Retirement has about 17% short-term TIPS.
TIPS didn't exist for the first 20+ years of the fund's history. The managers have apparently determined that they aren't needed. I don't know of any all-in-one funds that use TIPS aside from target date funds.
Yup, a lot of people don't think they're needed. Me, I'm not sure.
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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 »

GaryA505 wrote: Thu Sep 24, 2020 7:16 pm
willthrill81 wrote: Thu Sep 24, 2020 7:15 pm
GaryA505 wrote: Thu Sep 24, 2020 7:09 pm One thing that I don't like about Wellesley is that it doesn't have any inflation-protected component (as far as I know). Vanguard Target Retirement has about 17% short-term TIPS.
TIPS didn't exist for the first 20+ years of the fund's history. The managers have apparently determined that they aren't needed. I don't know of any all-in-one funds that use TIPS aside from target date funds.
Yup, a lot of people don't think they're needed. Me, I'm not sure.
Total bond market funds don't include TIPS.

While they are often discussed and recommended around here, TIPS appear to be more than a bit of a niche investment vehicle. As of right now, I prefer I bonds due to their higher yield.
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Re: Vanguard's Wellesley Income fund is incredible

Post by abuss368 »

GaryA505 wrote: Thu Sep 24, 2020 7:16 pm
willthrill81 wrote: Thu Sep 24, 2020 7:15 pm
GaryA505 wrote: Thu Sep 24, 2020 7:09 pm One thing that I don't like about Wellesley is that it doesn't have any inflation-protected component (as far as I know). Vanguard Target Retirement has about 17% short-term TIPS.
TIPS didn't exist for the first 20+ years of the fund's history. The managers have apparently determined that they aren't needed. I don't know of any all-in-one funds that use TIPS aside from target date funds.
Yup, a lot of people don't think they're needed. Me, I'm not sure.
Unless an investor believes they are exposed to unexpected inflation risks, I would agree they are probably not needed. Wages increase each year. Is debt at a fixed rate. Social Security will adjust.

The TIPS market is a small segment of the overall Treasury markets.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Kevin K »

I too much prefer iBonds to TIPS though admittedly the 10K per person per year purchase limit is a major drag.

But when you compare Vanguard Target Retirement Income or LifeStrategy Conservative Growth, which are the closest to Wellesley in their stock/bond allocations W comes out well ahead:

https://www.portfoliovisualizer.com/bac ... ion3_3=100

I really don't see short-term TIPS making much of a difference anyway and they certainly don't compensate for the major allocation to international equities and useless inclusion of hedged international bonds that have dragged down the performance of both of these "set it and forget it" funds since their inception. Personally I'd sooner go with Wellesley Global than either of these particular all-in-one funds.
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Re: Vanguard's Wellesley Income fund is incredible

Post by petulant »

Interesting that this thread got bumped today as I had read through parts of it yesterday. The managers for the equity sleeve were on Morningstar's The Long View podcast this week. Very interesting discussion; they sound very much like old-school value managers.

Here's a link:
https://www.morningstar.com/podcasts/the-long-view
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Re: Vanguard's Wellesley Income fund is incredible

Post by protagonist »

Robot Monster wrote: Thu Sep 24, 2020 5:50 pm
FactualFran wrote: Thu Sep 24, 2020 5:39 pm
protagonist wrote: Tue Jul 21, 2020 9:24 am
How did VWINX perform between late 1976 and late 1981 when interest rates (at least on Treasuries) went through the roof? *just curious*
For 1977 through 1981 the Wellesley Income fund had an annualized return of 6.88% while an annually re-balanced portfolio of 40% S&P 500 index and 60% 10-year Treasury securities had an annualized return of 4.02%.
I ran a similar portfolio through a backtest for that time period and came up with annualized return of 3.96% but inflation adjusted it was -5.54%. See:
https://www.portfoliovisualizer.com/bac ... tion2_1=60
For 40/60? Or for Wellesley Income?
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Re: Vanguard's Wellesley Income fund is incredible

Post by Harry Livermore »

petulant wrote: Thu Sep 24, 2020 7:50 pm Interesting that this thread got bumped today as I had read through parts of it yesterday. The managers for the equity sleeve were on Morningstar's The Long View podcast this week. Very interesting discussion; they sound very much like old-school value managers.

Here's a link:
https://www.morningstar.com/podcasts/the-long-view
Thank you for that link! I enjoyed the interview. I agree; they sound like old-school value guys. I really align with that.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Robot Monster »

protagonist wrote: Thu Sep 24, 2020 10:47 pm
Robot Monster wrote: Thu Sep 24, 2020 5:50 pm
FactualFran wrote: Thu Sep 24, 2020 5:39 pm
protagonist wrote: Tue Jul 21, 2020 9:24 am
How did VWINX perform between late 1976 and late 1981 when interest rates (at least on Treasuries) went through the roof? *just curious*
For 1977 through 1981 the Wellesley Income fund had an annualized return of 6.88% while an annually re-balanced portfolio of 40% S&P 500 index and 60% 10-year Treasury securities had an annualized return of 4.02%.
I ran a similar portfolio through a backtest for that time period and came up with annualized return of 3.96% but inflation adjusted it was -5.54%. See:
https://www.portfoliovisualizer.com/bac ... tion2_1=60
For 40/60? Or for Wellesley Income?
40/60.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Electron »

petulant wrote: Thu Sep 24, 2020 7:50 pmThe managers for the equity sleeve were on Morningstar's The Long View podcast this week. Very interesting discussion; they sound very much like old-school value managers.

https://www.morningstar.com/podcasts/the-long-view
I read the transcript and a lot of very interesting information is presented. The comment about buying ADP after the recent 40% decline with the dividend rising above 3% was especially interesting.

It also appears that Wellesley is investing in sectors that might not have been as representative in decades past. Examples include technology and healthcare. I've noticed in particular that quite a few technology stocks have offered strong balance sheets, modest valuations, and rising dividends.
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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 »

I found it very interesting how much importance they put on dividends which are meaningless to most here.
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Re: Vanguard's Wellesley Income fund is incredible

Post by petulant »

hoops777 wrote: Sun Sep 27, 2020 1:56 pm I found it very interesting how much importance they put on dividends which are meaningless to most here.
It was especially odd that they said they try to make sure dividends were sustainable etc. but then said their bottom line is a total return approach that will benefit investor more over the long term.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Harry Livermore »

petulant wrote: Sun Sep 27, 2020 2:02 pm
hoops777 wrote: Sun Sep 27, 2020 1:56 pm I found it very interesting how much importance they put on dividends which are meaningless to most here.
It was especially odd that they said they try to make sure dividends were sustainable etc. but then said their bottom line is a total return approach that will benefit investor more over the long term.
I agree with the idea that total return is a worthy and logical goal.
However, at the end of the day they are not just picking stocks, but investing in companies. I think the forced discipline of paying a regular dividend prevents the worst kind of "gaming the financials" behavior that sometimes makes a company look healthier on paper than it is. Of course, a dividend alone does not a solid investment make. There are countless example of companies paying a dividend even as the stock dwindles in value.
I can't speak for them, but I assume when they speak of dividends being sustainable, they are evaluating the financial strength of a company, and that's one metric they use. When they look at an outsize yield they may be using it as a metric for a company not currently fairly valued and potentially a good buy (or a value trap)
They are very smart guys and I assume they look at many different metrics when they evaluate companies. If you are going to buy a managed fund, it's smart to investigate the managers' "style" and make sure you think that style stands a good chance at generating some alpha... otherwise just go VTSAX and chill... since my "style" is to seek value, and Graham's "margin of safety", I liked hearing what they had to say. Maybe it's no longer a useful framing device, I don't know.
I read a book years ago called "Dividends Don't Lie". It laid out a compelling case for dividends not only as a contractual payment to investors, but as a value and financial metric with which to evaluate a company. It might be interesting to find it at the library and revisit it (I betcha it's a bit dated now)
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Re: Vanguard's Wellesley Income fund is incredible

Post by willthrill81 »

hoops777 wrote: Sun Sep 27, 2020 1:56 pm I found it very interesting how much importance they put on dividends which are meaningless to most here.
It's not that dividends are meaningless but that total returns are what really matter.
petulant wrote: Sun Sep 27, 2020 2:02 pm It was especially odd that they said they try to make sure dividends were sustainable etc. but then said their bottom line is a total return approach that will benefit investor more over the long term.
They are likely very cognizant of the fact that many investors are drawn to dividends and want to keep those as consistent as possible, even though they know that total returns are what really matter.

I don't envy active managers in the slightest. They have many competing concerns, and finding the right balance is seemingly a highly dynamic pursuit.
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Re: Vanguard's Wellesley Income fund is incredible

Post by petulant »

willthrill81 wrote: Sun Sep 27, 2020 3:37 pm
petulant wrote: Sun Sep 27, 2020 2:02 pm It was especially odd that they said they try to make sure dividends were sustainable etc. but then said their bottom line is a total return approach that will benefit investor more over the long term.
They are likely very cognizant of the fact that many investors are drawn to dividends and want to keep those as consistent as possible, even though they know that total returns are what really matter.

I don't envy active managers in the slightest. They have many competing concerns, and finding the right balance is seemingly a highly dynamic pursuit.
Yeah, that's totally fair. I think one thing they're doing with the dividends, based on the interview, is cutting down volatility and improving Sharpe ratio by targeting dividend stocks that are unlikely to have dividends cut. There might be some specific technical market behavior they're exploiting to contribute to their excellent risk/return there, beyond just marketing payout.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Electron »

I found it very interesting how much importance they put on dividends which are meaningless to most here.
I think the answer is that Wellesley is an Income Fund.

Information from the Prospectus:

Investment Objective

"The Fund seeks to provide long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation."
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Re: Vanguard's Wellesley Income fund is incredible

Post by maj »

Use index funds for many years, still do in taxable accounts.

Beginning to take withdrawals from tax-deferred accounts.

I have 45% in Wellesley and 45% in LifeStrategy Income

Wellesley is managed 65-35% quality corporate bonds - quality dividend paying stocks

LS Income is indexed 80-20% quality gov't & corp. bonds - total usa and international stock indexes

10% in very short-term managed bond fund, from which mandatory withdrawals are taken. (I replenish from which ever of the other two funds has outperformed.)

Keeps my tax-deferred portfolio in about 25% in equities.

Why use managed Wellesley fund? Because I cannot find equivalent 65%-35% index income fund. If there were a Vanguard fund composed of 60% High Dividend Yield Fund and 40% quality corporate bond fund, I would use it instead of Wellesley.

If one does not want equity in tax-deferred when withdrawing then 50-50 Total Bond Market and Corporate Bond Market would be good.

peace
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Re: Vanguard's Wellesley Income fund is incredible

Post by hoops777 »

Electron wrote: Sun Sep 27, 2020 4:23 pm
I found it very interesting how much importance they put on dividends which are meaningless to most here.
I think the answer is that Wellesley is an Income Fund.

Information from the Prospectus:

Investment Objective

"The Fund seeks to provide long-term growth of income and a high and sustainable level of current income, along with moderate long-term capital appreciation."
I guess my point was that maybe people who invest with more of a focus on dividends have some pretty smart people doing just that. Unless of course the people who run Wellesley and Wellington are not good at what they do. I am also seeing other very well respected people talking about dividend stocks in this new horrible fixed income environment. Not starting the usual endless total return vs dividend ##$%^@. It is what it is. Just leave it at that.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Jerry55 »

hoops777 wrote: Sun Sep 27, 2020 1:56 pm I found it very interesting how much importance they put on dividends which are meaningless to most here.

Most, but not all. Everyone here is not investing according to your style, as many of us have different situations and invest accordingly.
I, for one, enjoy the ~ $5-6,000 / year I receive in dividends for my own personal reasons.

Please, if you don't agree with it, try not to disparage those of us who think differently. Your comment "Meaningless to most" is truly self serving.
As my son would say...."You do You" and enjoy your investments as you see fit. I'm pretty sure your importance in investing is meaningless to me also.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Stkfox »

Jerry55 wrote: Tue Oct 13, 2020 11:46 pm
hoops777 wrote: Sun Sep 27, 2020 1:56 pm I found it very interesting how much importance they put on dividends which are meaningless to most here.

Most, but not all. Everyone here is not investing according to your style, as many of us have different situations and invest accordingly.
I, for one, enjoy the ~ $5-6,000 / year I receive in dividends for my own personal reasons.

Please, if you don't agree with it, try not to disparage those of us who think differently. Your comment "Meaningless to most" is truly self serving.
As my son would say...."You do You" and enjoy your investments as you see fit. I'm pretty sure your importance in investing is meaningless to me also.
I agree! Wellesley is a significant portion of my portfolio for a reason specific to my investment plan. I’ve been very satisfied with its performance.
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Re: Vanguard's Wellesley Income fund is incredible

Post by Blue456 »

I wonder what do folks in here think about Global Wellesley/Wellington funds. I know that this may sound like derailing the topic but I think the question relates to general fund management by Wellington team.
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Re: Vanguard's Wellesley Income fund is incredible

Post by WhyNotUs »

Thanks for the link, interesting talk
S_Track wrote: Wed Sep 23, 2020 7:33 pm Hello All,

Morningstar's The Long View Podcast talked with Two of Wellesley's fund managers in their recent episode.

"Two Wellington Management portfolio managers discuss how they manage risk at Vanguard Wellesley Income, why they’ve taken a liking to busted growth stocks, and where they’re finding durable sources of income."

https://www.morningstar.com/podcasts/the-long-view/75
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