Indexing beats Wellington and Wellesley right?

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teelainen
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Indexing beats Wellington and Wellesley right?

Post by teelainen » Fri Mar 15, 2019 10:44 pm

If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.

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Re: Indexing beats Wellington and Wellesley right?

Post by MotoTrojan » Fri Mar 15, 2019 11:20 pm

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
Because historically they’ve done better. Most of the concerns with active still apply but they are not as egregious because as you stated, ER is higher but it’s nowhere near the usual 1%+ of other active funds. Still not my cup of tea.

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whodidntante
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Re: Indexing beats Wellington and Wellesley right?

Post by whodidntante » Fri Mar 15, 2019 11:49 pm

I don't think active funds are worse. Blasphemy, I know. Prepare the tar and the feathers. The problem is that active funds live in a bad part of town where nearly everybody is scamming.

I think that costs matter including tax cost, and that active funds have different risks. Low cost active funds will most likely survive the low cost revolution because people want them. That said, I have no interest in owning the Vanguard dubya funds, and those different risks I mentioned are not something I want to accept.

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Re: Indexing beats Wellington and Wellesley right?

Post by JBTX » Sat Mar 16, 2019 12:06 am

I think people here recommend them because:

- they have generally beaten comparable indexes
- their fees are very low for an active fund
- although active they generally have low turnover.

I have decent size stakes in both. But I suspect part of their outsized returns has been their strategy has been well suited for an environment of large cap performance and generally declining interest rates and inflation. I'm not sure that will continue going forward.

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Re: Indexing beats Wellington and Wellesley right?

Post by columbia » Sat Mar 16, 2019 4:23 am

“Yogi Berra” wrote:You’ll never beat the market with active management, but it’s the only way to do it.

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Re: Indexing beats Wellington and Wellesley right?

Post by sambb » Sat Mar 16, 2019 5:18 am

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
because there is bias for vanguard.

Dantes
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Re: Indexing beats Wellington and Wellesley right?

Post by Dantes » Sat Mar 16, 2019 5:57 am

Because they have names that are appeal to all those interested in the Peninsular War in Spain and Portugal 1808-1814, or in the Battle of Waterloo

Because they have been around a long long time

Because they are pretty conservative large cap blends, and if you want to be active they are about as unspeculative as you can get.

Because once you have a three-fund portfolio its hard to do nothing; if you must do something they would be considered a pretty harmless choice.

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vineviz
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Re: Indexing beats Wellington and Wellesley right?

Post by vineviz » Sat Mar 16, 2019 6:19 am

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
Some people believe that past performance is an indicator of future returns, and also that Vanguard can do no wrong.
"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: Indexing beats Wellington and Wellesley right?

Post by RickBoglehead » Sat Mar 16, 2019 6:29 am

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
The majority of investors can't beat the market by doing something other than index investing with a three fund portfolio. Most investors don't have a clue what they are doing. Therefore indexed funds are best for most people.

Most managed funds lose to the indices they are measured against.

Notice the words "majority" and "most".

Wellington is a great balanced fund. Wellesley is very conservative, and focuses on income. Many older investors like steady income, don't want to be bothered to sell investments, just like that income stream coming in. I can't see someone owning both though.

We have about 1/3rd of our portfolio in Vanguard Primecap. Started investing in it before it was closed to new investors, and before new investments by existing investors was restricted to $25,000 per year per account registration. First purchase was in 1995 when the share price was $20.70. It closed Friday at $131.27. It consistently beats anything comparable.

To each their own. The only right way for you is your way.
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columbia
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Re: Indexing beats Wellington and Wellesley right?

Post by columbia » Sat Mar 16, 2019 7:05 am

If you look at Dodge & Cox Balanced Fund, Wellington and VG Balanced Index, they all perform reasonably similarly, even with factoring in the higher fees of the first two. They are not identical in their risk profiles, but are similar enough to be interchangeable.

Will one of them outperform the other two in the future? No one knows, but the leader is unlikely to ever be that far ahead.

Like so many things related to investing, it’s a personal preference issue. Declaring one of them to be inherently superior would be misguided, IMO.

Monster99
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Re: Indexing beats Wellington and Wellesley right?

Post by Monster99 » Sat Mar 16, 2019 7:15 am

Because unlike today, back in the old days the availability of low cost funds was limited.
Now after many years of gains, it is more prudent to just withdraw in retirement than to restructure.
I also like the income that Wellington throws off to supplement my golf habit.
(New clubs arrive on Monday!)

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Re: Indexing beats Wellington and Wellesley right?

Post by rkhusky » Sat Mar 16, 2019 8:09 am

Because W & W have value slants and everyone knows that value outperforms total market, right? The old risk/reward correspondence.

Also, W & W have mainly corporate bonds that, while more risky than Treasuries, are expected to out-perform over long periods of time. The old risk/reward correspondence.

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Re: Indexing beats Wellington and Wellesley right?

Post by bgf » Sat Mar 16, 2019 8:19 am

columbia wrote:
Sat Mar 16, 2019 4:23 am
“Yogi Berra” wrote:You’ll never beat the market with active management, but it’s the only way to do it.
that's so good
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

notinuse
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Re: Indexing beats Wellington and Wellesley right?

Post by notinuse » Sat Mar 16, 2019 8:22 am

Humans are not 100% rational.

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Re: Indexing beats Wellington and Wellesley right?

Post by KlangFool » Sat Mar 16, 2019 8:44 am

OP,

1) Wellington and Wellesley are actively managed large value fund.

2) If the market is not exactly efficient, the actively managed value fund can beat the index.

3) I hedged my bets. I do not like to put all my money into one bet.

A) 40% in Wellington fund

B) 40% into 3 funds (index)

C) 20% into Larry portfolio.

KlangFool

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Kenkat
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Re: Indexing beats Wellington and Wellesley right?

Post by Kenkat » Sat Mar 16, 2019 8:52 am

rkhusky wrote:
Sat Mar 16, 2019 8:09 am
Because W & W have value slants and everyone knows that value outperforms total market, right? The old risk/reward correspondence.

Also, W & W have mainly corporate bonds that, while more risky than Treasuries, are expected to out-perform over long periods of time. The old risk/reward correspondence.
This explains at least a portion of the outperformance I think.

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Kenkat
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Re: Indexing beats Wellington and Wellesley right?

Post by Kenkat » Sat Mar 16, 2019 8:55 am

Wellesley and Wellington are low cost. Index funds are low cost.

Wellesley and Wellington are low turnover. Index funds are low turnover.

Sensing a trend here? Active funds underperform because they are too expensive. That’s pretty much it. Take that away and you will have similar performance. Yes, Wellesley and Wellington are more expensive than an index fund, but not much more expensive and so it’s not all that significant of a difference.

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Re: Indexing beats Wellington and Wellesley right?

Post by tibbitts » Sat Mar 16, 2019 9:37 am

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
Bogleheads aren't immune to emotion when investing. During the years when most Bogleheads were invested in these funds they performed well, and there weren't always index funds that would replicated its holdings.

If index funds and this forum had been around in the late 1960s or 1970s you would have seen a lot of "I told you so!" posts in favor indexing vs. Wellington, for sure. Maybe we'll still see that someday. A question with active funds is how much underperformance to tolerate and for how long. So funds come back; others don't - including Vanguard funds.

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Re: Indexing beats Wellington and Wellesley right?

Post by dbr » Sat Mar 16, 2019 9:43 am

I think people truly hope they can be smarter than indexing and that W&W are the choice to implement that. It could even turn out that this is correct if only by chance and not by intelligence.

Probably a more dispassionate analysis would be that an odd combination of value stocks and corporate bonds is really not all that bad an idea until it doesn't work. The advantage, if it exists, is paid for by taking on manager risk that may or may not materialize. It has materialized in the past.

You pay your money and you take your choice.

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Re: Indexing beats Wellington and Wellesley right?

Post by bengal22 » Sat Mar 16, 2019 9:59 am

1. Index funds beat similar(class) active funds because of ER.

2. Some of us have Wellesley and Wellington in our taxable accounts and don't be want to switch because of capital gains.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

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Re: Indexing beats Wellington and Wellesley right?

Post by dbr » Sat Mar 16, 2019 10:13 am

bengal22 wrote:
Sat Mar 16, 2019 9:59 am
1. Index funds beat similar(class) active funds because of ER.

2. Some of us have Wellesley and Wellington in our taxable accounts and don't be want to switch because of capital gains.
I think Mr. Bogle was in the same situation regarding cap gains.

Also, to compare one needs to find a couple of index funds that would seek the same sort of asset selection as W&W. The published benchmark funds aren't necessarily that selection.

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Re: Indexing beats Wellington and Wellesley right?

Post by columbia » Sat Mar 16, 2019 10:15 am

dbr wrote:
Sat Mar 16, 2019 10:13 am
bengal22 wrote:
Sat Mar 16, 2019 9:59 am
1. Index funds beat similar(class) active funds because of ER.

2. Some of us have Wellesley and Wellington in our taxable accounts and don't be want to switch because of capital gains.
I think Mr. Bogle was in the same situation regarding cap gains.

Also, to compare one needs to find a couple of index funds that would seek the same sort of asset selection as W&W. The published benchmark funds aren't necessarily that selection.
If you look at the 10 year returns, Wellesley has done a better job at beating its benchmark.

Is that because active management is more effective with bonds or simply that growth has outpaced value? Both is probably the correct explanation.

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Re: Indexing beats Wellington and Wellesley right?

Post by dbr » Sat Mar 16, 2019 10:20 am

columbia wrote:
Sat Mar 16, 2019 10:15 am
dbr wrote:
Sat Mar 16, 2019 10:13 am
bengal22 wrote:
Sat Mar 16, 2019 9:59 am
1. Index funds beat similar(class) active funds because of ER.

2. Some of us have Wellesley and Wellington in our taxable accounts and don't be want to switch because of capital gains.
I think Mr. Bogle was in the same situation regarding cap gains.

Also, to compare one needs to find a couple of index funds that would seek the same sort of asset selection as W&W. The published benchmark funds aren't necessarily that selection.
If you look at the 10 year returns, Wellesley has done a better job at beating its benchmark.

Is that because active management is more effective with bonds or simply that growth has outpaced value? Both is probably the correct explanation.
Possibly. I personally don't believe it means anything to talk about a benchmark except for an index fund. In that case matching the benchmark is a question of how well the fund eliminates tracking error and how well they keep costs to a minimum -- two things they are supposed to be doing. Otherwise to say my asset allocation performs differently from some other asset allocation is neither here nor there. In fact, not matching a benchmark by, for example, beating it, should qualify as a management failure because the fund did not do what it was expected to do.

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Re: Indexing beats Wellington and Wellesley right?

Post by Kenkat » Sat Mar 16, 2019 10:28 am

When looking at expense ratios, Vanguard Wellington Admiral is 0.17% while Balanced Index Admiral is 0.07%. That’s a small difference; small enough in my opinion that it is not a primary decision point when choosing between the two.

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Re: Indexing beats Wellington and Wellesley right?

Post by gmaynardkrebs » Sat Mar 16, 2019 10:38 am

My favorite funds are "almost-index" types, where the managers merely tweak an index to remove a few things at the margins that seem off to them. The purest example of this are the "active" Vanguard muni funds, which I like because the muni market lacks transparency, and maybe these guys weed out some bad stuff that the index includes because it has to. Wellington and Wellesley aren't quite as almost-index, but I hold them because I think that type of management adds some value at a very low cost.

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Re: Indexing beats Wellington and Wellesley right?

Post by ETadvisor » Sat Mar 16, 2019 10:44 am

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
It could be for simplicity of selecting 1 fund after determining appropriate AA. For best of both 1 fund and lesser expenses, select the Vanguard Lifestyle Funds equal to your desired AA. The ER is 0.14

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Re: Indexing beats Wellington and Wellesley right?

Post by DB2 » Sat Mar 16, 2019 11:26 am

Since the year I was born (1972) Wellington has only lost money 8 years (and one of those loss years it was nearly even only at a -.49 loss in 1994). I think about how much money I would have today if starting contributing to this when I was 18.

On any rate, in a way, it's a semi index as I was looking at what each sector is allocated at as of 2/28/2019. It appears Wellington is hedging more towards financials (as is Buffett from what I understand) and less towards IT. All of the other sectors are reasonably close enough.

I do like the bond mix as well.

https://investor.vanguard.com/mutual-fu ... olio/vwelx

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Re: Indexing beats Wellington and Wellesley right?

Post by Socrates » Sat Mar 16, 2019 11:39 am

Active funds underperform because they are too expensive. That’s pretty much it.
well said.

With Vanguard lowering their expenses paired with their long track history of terrific returns and low turnover, they are very attractive options
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ankonaman
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Re: Indexing beats Wellington and Wellesley right?

Post by ankonaman » Sat Mar 30, 2019 5:31 pm

Use portfolio visualizer and back test a 50% VTI/50% VBTLX portfolio against a 50% Wellington/50% Wellesley Mix.

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Re: Indexing beats Wellington and Wellesley right?

Post by livesoft » Sat Mar 30, 2019 5:35 pm

People cannot steel themselves into buying long-term bonds, but the managers of W & W can. People who invest in W & W often don't know what it is in them nor do they even care. And balanced funds like W & W help prevent some investors from selling low. Certainly, the managers are not gonna be selling low. ;)
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ankonaman
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Re: Indexing beats Wellington and Wellesley right?

Post by ankonaman » Sat Mar 30, 2019 6:35 pm

livesoft wrote:
Sat Mar 30, 2019 5:35 pm
People cannot steel themselves into buying long-term bonds, but the managers of W & W can. People who invest in W & W often don't know what it is in them nor do they even care. And balanced funds like W & W help prevent some investors from selling low. Certainly, the managers are not gonna be selling low. ;)
I've established a large position in Wellington and plan on adding in Wellesley to my portfolio for the exact reason you just outlined. It keeps me in the game and helps prevent foolish mistakes.

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Re: Indexing beats Wellington and Wellesley right?

Post by Trader Joe » Sat Mar 30, 2019 6:48 pm

teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
I do not love the Vanguard Wellington and Wellesley funds. I have never invested in those funds. Nor will I ever invest in those funds. This forum does not recommend those funds.

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Re: Indexing beats Wellington and Wellesley right?

Post by dh » Sat Mar 30, 2019 6:56 pm

Kenkat wrote:
Sat Mar 16, 2019 10:28 am
When looking at expense ratios, Vanguard Wellington Admiral is 0.17% while Balanced Index Admiral is 0.07%. That’s a small difference; small enough in my opinion that it is not a primary decision point when choosing between the two.
Additionally, Wellington's stock portion is currently 15% International; 85% US. Whereas, Balanced stock portion is 100% US.

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Re: Indexing beats Wellington and Wellesley right?

Post by tibbitts » Sat Mar 30, 2019 6:59 pm

Trader Joe wrote:
Sat Mar 30, 2019 6:48 pm
teelainen wrote:
Fri Mar 15, 2019 10:44 pm
If everyone agrees that indexing is superior to actively-managed funds, then why is Wellington and Wellesley still so popular? Not to mention that Wellington and Wellesley have higher expenses as well.

Doesn't it make sense to just skip Wellington/Wellesley and build your own "Three-Fund or Four-Fund Portfolio" using the best Vanguard index funds with the same allocations as Wellington/Wellesley?

I'm just curious why so many people still love Wellington and Wellesley. I'm sure there must be good reasons, thanks.
I do not love the Vanguard Wellington and Wellesley funds. I have never invested in those funds. Nor will I ever invest in those funds. This forum does not recommend those funds.
It's inaccurate to say "the forum" either recommends W & W, or doesn't. Forum opinions on W & W vary.

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Re: Indexing beats Wellington and Wellesley right?

Post by Dominic » Sat Mar 30, 2019 7:16 pm

JBTX wrote:
Sat Mar 16, 2019 12:06 am
I think people here recommend them because:

- they have generally beaten comparable indexes
- their fees are very low for an active fund
- although active they generally have low turnover.
This is 80% of the story. They're active funds that don't have the drawbacks of typical active funds.

I've done factor regressions in the past, and I think a lot of the outperformance of these funds is owed to a value/quality tilt on the stock side, and a term/credit tilt on the bond side (although there is little enough credit exposure that the correlation between the stock and bond portfolio is kept to a minimum). I think these are perfectly good funds to expect to outperform in the future if you believe in factor investing.

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Re: Indexing beats Wellington and Wellesley right?

Post by Dottie57 » Sat Mar 30, 2019 7:38 pm

From 1988 to now, Wellington beats VIIIX (S&P500 inst). From 2005 to now VIIIX beats Wellington. I own a very small amount of Wellington. In HSA.

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Re: Indexing beats Wellington and Wellesley right?

Post by prairieman » Sat Mar 30, 2019 7:46 pm

I have some of each (W & W) and a few others. Perhaps it is irrational, but I prefer not to have all eggs in only one (or three) basket(s). I still worry that indexing could some day ["face the facts" --admin LadyGeek] and, although I hope that day never comes, having some money in well-respected low-cost actively managed funds might provide a bit of a buffer.

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Re: Indexing beats Wellington and Wellesley right?

Post by knpstr » Sat Mar 30, 2019 7:54 pm

"Indexing beats Wellington and Wellesley right?"

In theory.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Indexing beats Wellington and Wellesley right?

Post by sambb » Sat Mar 30, 2019 8:29 pm

To the OP:

Bogleheads are not one voice, but yes W an W are well liked. If they were Fidelity funds, people may trash them here . In other words, there could be an illogical bias towards vanguard occasionally here,

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Re: Indexing beats Wellington and Wellesley right?

Post by JBTX » Sat Mar 30, 2019 8:55 pm

Dominic wrote:
Sat Mar 30, 2019 7:16 pm
JBTX wrote:
Sat Mar 16, 2019 12:06 am
I think people here recommend them because:

- they have generally beaten comparable indexes
- their fees are very low for an active fund
- although active they generally have low turnover.
This is 80% of the story. They're active funds that don't have the drawbacks of typical active funds.

I've done factor regressions in the past, and I think a lot of the outperformance of these funds is owed to a value/quality tilt on the stock side, and a term/credit tilt on the bond side (although there is little enough credit exposure that the correlation between the stock and bond portfolio is kept to a minimum). I think these are perfectly good funds to expect to outperform in the future if you believe in factor investing.
What I don't know is:

- did these fund actually benefit from investing in underapprecisted and undervalued sectors
- have they just been lucky as these sectors are more likely to overperform in a low inflation, declining interest rate environment

If you look at late 70s early 80s they did materially worse than balanced fund peers .

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Re: Indexing beats Wellington and Wellesley right?

Post by Dominic » Sat Mar 30, 2019 9:26 pm

JBTX wrote:
Sat Mar 30, 2019 8:55 pm
Dominic wrote:
Sat Mar 30, 2019 7:16 pm
JBTX wrote:
Sat Mar 16, 2019 12:06 am
I think people here recommend them because:

- they have generally beaten comparable indexes
- their fees are very low for an active fund
- although active they generally have low turnover.
This is 80% of the story. They're active funds that don't have the drawbacks of typical active funds.

I've done factor regressions in the past, and I think a lot of the outperformance of these funds is owed to a value/quality tilt on the stock side, and a term/credit tilt on the bond side (although there is little enough credit exposure that the correlation between the stock and bond portfolio is kept to a minimum). I think these are perfectly good funds to expect to outperform in the future if you believe in factor investing.
What I don't know is:

- did these fund actually benefit from investing in underapprecisted and undervalued sectors
- have they just been lucky as these sectors are more likely to overperform in a low inflation, declining interest rate environment

If you look at late 70s early 80s they did materially worse than balanced fund peers .
I did a quick backtest using an year old copy of Simba's backtesting spreadsheet.

65/35 portfolio of large cap value with corporate bond index was essentially identical to Wellington from 1970-2017. A 65/35 portfolio of total stock market and total bond market did a bit worse, but it's close enough that I wouldn't say Wellington crushed the market.

I tried zeroing in on the late 70's and early 80's and found that Wellington returned maybe 1% worse annually than the above portfolios during that period. To me, that looks like tracking error over a short period of time, rather than something fundamentally wrong with the portfolio.

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Re: Indexing beats Wellington and Wellesley right?

Post by S_Track » Sat Mar 30, 2019 9:42 pm

prairieman wrote:
Sat Mar 30, 2019 7:46 pm
I have some of each (W & W) and a few others. Perhaps it is irrational, but I prefer not to have all eggs in only one (or three) basket(s). I still worry that indexing could some day encounter its own come-to-Jesus moment and, although I hope that day never comes, having some money in well-respected low-cost actively managed funds might provide a bit of a buffer.
In a portion of my 401K I mix VG LS conservative with Wellesley and add in VG S&P 500 until I get to my desired AA. It's mostly index but like the idea of a bit of active for the reasons you mention above.

Dead Man Walking
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Re: Indexing beats Wellington and Wellesley right?

Post by Dead Man Walking » Sun Mar 31, 2019 12:01 am

Survivorship bias hasn’t been mentioned. It’s hard to beat Wellington’s survivorship. 1928 was a long time ago.

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Re: Indexing beats Wellington and Wellesley right?

Post by JBTX » Sun Mar 31, 2019 10:39 am

Dominic wrote:
Sat Mar 30, 2019 9:26 pm
JBTX wrote:
Sat Mar 30, 2019 8:55 pm
Dominic wrote:
Sat Mar 30, 2019 7:16 pm
JBTX wrote:
Sat Mar 16, 2019 12:06 am
I think people here recommend them because:

- they have generally beaten comparable indexes
- their fees are very low for an active fund
- although active they generally have low turnover.
This is 80% of the story. They're active funds that don't have the drawbacks of typical active funds.

I've done factor regressions in the past, and I think a lot of the outperformance of these funds is owed to a value/quality tilt on the stock side, and a term/credit tilt on the bond side (although there is little enough credit exposure that the correlation between the stock and bond portfolio is kept to a minimum). I think these are perfectly good funds to expect to outperform in the future if you believe in factor investing.
What I don't know is:

- did these fund actually benefit from investing in underapprecisted and undervalued sectors
- have they just been lucky as these sectors are more likely to overperform in a low inflation, declining interest rate environment

If you look at late 70s early 80s they did materially worse than balanced fund peers .
I did a quick backtest using an year old copy of Simba's backtesting spreadsheet.

65/35 portfolio of large cap value with corporate bond index was essentially identical to Wellington from 1970-2017. A 65/35 portfolio of total stock market and total bond market did a bit worse, but it's close enough that I wouldn't say Wellington crushed the market.

I tried zeroing in on the late 70's and early 80's and found that Wellington returned maybe 1% worse annually than the above portfolios during that period. To me, that looks like tracking error over a short period of time, rather than something fundamentally wrong with the portfolio.
Interesting. Thanks for running those scenarios.

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teelainen
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Re: Indexing beats Wellington and Wellesley right?

Post by teelainen » Sun Mar 31, 2019 11:10 am

prairieman wrote:
Sat Mar 30, 2019 7:46 pm
I have some of each (W & W) and a few others. Perhaps it is irrational, but I prefer not to have all eggs in only one (or three) basket(s). I still worry that indexing could some day ["face the facts" --admin LadyGeek] and, although I hope that day never comes, having some money in well-respected low-cost actively managed funds might provide a bit of a buffer.
If indexing some day encounters its ["face the facts" --admin LadyGeek] like you said, wouldn't actively managed funds suffer equally as much?

What would cause index funds to suffer disproportionately more damage than everything else that is not index based?

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willthrill81
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Re: Indexing beats Wellington and Wellesley right?

Post by willthrill81 » Sun Mar 31, 2019 11:15 am

I calculated the probability that Wellesley Income's historic out-performance of passive funds is due to random chance not long ago.
willthrill81 wrote:
Mon Dec 31, 2018 7:23 pm
vineviz wrote:
Mon Dec 31, 2018 7:00 pm
willthrill81 wrote:
Mon Dec 31, 2018 5:36 pm
vineviz wrote:
Tue Dec 04, 2018 8:05 am
dcop wrote:
Tue Dec 04, 2018 1:46 am

If you can point me to somewhere in the combined 128 years of these 2 funds that they were mis-managed then perhaps it would be prudent. I'm not sure these life spans reflect that tho.
They’re not guilty of mismanagement, merely of being lucky.
From a statistical standpoint, I don't believe that's accurate. The likelihood of their performance being as good as it has been for as long as it has due to random chance is miniscule.
Believe it. The likelihoods are easy to calculate for yourself.
Okay.

According to MarketWatch, only 7.8% of large-cap funds beat the S&P 500 between 2002-2017. Roughly speaking, Wellesley has been around three times that long. So the likelihood of a large cap fund beating the S&P 500 by any margin whatsoever for 45 years is .00047 (.078^3), or roughly 1 in 2,128. Now Wellesley is obviously not an all stock fund, but it has handily beaten a 30/70 split of large-cap stocks and intermediate term bonds of any flavor that I have found.

Perhaps you are calculating this differently.
Now which is more likely, that Wellesley Income's performance has been just random chance or that they have indeed had some 'secret sauce' (i.e. ability to produce some alpha)?
“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

MindBogler
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Re: Indexing beats Wellington and Wellesley right?

Post by MindBogler » Sun Mar 31, 2019 11:49 am

Sometimes I think we focus too much on absolutes instead of realizing that one could do a lot worse than Wellington and Wellesley...

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Re: Indexing beats Wellington and Wellesley right?

Post by DB2 » Sun Mar 31, 2019 1:09 pm

If one could only take one balanced fund, a case could certainly be made for Wellington especially Admiral. The yield is also higher compared to other balanced funds.

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Re: Indexing beats Wellington and Wellesley right?

Post by LadyGeek » Sun Mar 31, 2019 1:51 pm

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Re: Indexing beats Wellington and Wellesley right?

Post by ThrustVectoring » Mon Apr 01, 2019 7:06 pm

EV(active) = EV(passive) + idiosyncratic risk + cost difference

The cost difference is low, and management doesn't do all that much here (turnover is low), so roughly speaking it's a decision that makes little difference. I'm happy with indexing, but if you want to try to "beat the market" there's a ton worse options out there.
Current portfolio: 60% VTI / 40% VXUS

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