Why is Wellesley doing so well??

[btenny]

I just finished my annual year end book keeping and my returns were almost 3% for the year. I thought this was OK to good for 40/60 stock/bond portfolio. But then I looked at Wellesley and see they earned almost 9.6% for the year for 35/65 portfolio. This is fabulous. Plus when you look at the investment strategy and the history this fund is hitting it out of the ball park.

BUT WHY????? I see no particular data to tell me what they are doing right. Can someone tell us the miracle they have discovered?

Thanks in advance
Bill

[hazlitt777]

You probably read this report, but in case you didn't, there may be some insights. It came out in September so you have to take that into regard.

http://www.vanguard.com/funds/reports/q270.pdf

[sschullo]

Chasing dividend paying stocks and bond returns were good.

[alanf56]

I wonder if it makes any sense to mix in a bit of VWIAX if you are targeting 40/60 allocation with the Three fund approach??

[btenny]

I'm sorry things just do not add up..... Please tell me how a fund can go from 4.86% annual returns in September (according to the fund annual report) and then finish the year 2011 at 9.6% three months later. That is magic where I come from. This just does not make sense.

Bill

[Tim_in_GA]

I'm sorry things just do not add up..... Please tell me how a fund can go from 4.86% annual returns in September (according to the fund annual report) and then finish the year 2011 at 9.6% three months later. That is magic where I come from. This just does not make sense.

Bill

Not really magic. The market had a pretty decent 4th quarter while bonds seemed to do well in the same time period. I'm no expert - but that's just my observation looking at charts and looking at how my 401k & IRA did in Q4.

[Midpack]

I wonder if it makes any sense to mix in a bit of VWIAX if you are targeting 40/60 allocation with the Three fund approach??

As you probably know, it depends on your tax options. Most people opt for three funds instead of Wellesley to put low efficiency holdings like bonds in sheltered accounts and higher efficiency holdings like large cap stocks in taxable accounts.

[jeffyscott]

I'm sorry things just do not add up..... Please tell me how a fund can go from 4.86% annual returns in September (according to the fund annual report) and then finish the year 2011 at 9.6% three months later. That is magic where I come from. This just does not make sense.

Bill

Hmm, let's see 9.6-4.86 = 4.74%. So just a guess here that, rather than "magic", the fund simply gained 4.74% in the last quarter.

Vanguard dividend growth gained nearly 12% in that quarter and intermediate corp bonds about 2%, a 40/60 mix of those would have gained nearly 6%.

edit: ...and equity income gained 13.76% in that quarter.

[grayfox]

I would say that Wellesley was in the right place at the right time. In 2011, in general taking risk was not rewarded. Conservative investments did much better than riskier investments.

Wellesley holds about 37% stocks and 63% bonds. Most of the stocks are solid dividend payers. See how well other Vanguard dividend stock funds did in 2011

Code: Select all

2011 VANGUARD DIVIDEND STOCK FUND RETURNS

        Capital  Income  Total
        Return   Return  Return

VHDYX     7.12    3.23     10.35 High-Dividend Yield
VEIPX     7.46    3.21     10.60 Equity Income
VDIGX     7.23    2.19      9.43 Dividend Growth
VDAIX     3.85    2.20      6.05 Dividend Appreciation
VPU      14.57    4.33     18.91 Utilities ETF

Most of the bonds are Investment Grade with average maturity of 9.9 years. The IM and LT Investment Grade also did very well.

Code: Select all

2011 VANGUARD BOND FUND RETURNS

        Capital  Income  Total
        Return   Return  Return

VFSTX   -0.85   2.77    1.93   Short-Term Investment Grade 2.6 years
VFICX    2.98   4.54    7.52   Intermediate-Term Investment Grade 6.7 years
VWESX   11.06   6.12   17.18   Long-Term Investment Grade 24.3 years
VWINX    5.67   3.96    9.63 Wellesley Income 37/63

The Wellesley combination of dividend stocks and investment-grade bonds did great last year.

[btenny]

Thanks. I see now that the Wellesley fund streaches the bond maturty to the long side at 9+ years so they profited big time from the interest rate things that happened in 2011 a lot. Plus they were very lucky with the high dividend stock selections and maxed out that as well just like the other equity Income funds. Of course all this took max effect in the 4th quarter so the fund made 6% for the 3 month period which is sort of a home run...

Net net, all their stars aligned for max profit in 2011. This may repeat or it may not. Who knows. But they sure have had a great run of profits....

Bill

[AgnosticInvestor]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

[AgnosticInvestor]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

To clarify, issue selection may have outweighed stock selection or vice versa. In other words, the equity managers may have underperformed and the fixed income managers' outperformance may have been enough to 'cover' for their equity brethren's underperformance (again, or vice versa).

[snowman9000]

Wellesley has been very good for most of the 25 years I have owned or watched it.

[investor]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

The active managers of Wellington and Wellesley have been getting it right for a long time... There are some active funds that are cheap and benefit from active managers. The best of both worlds... Having been retired for 16 years I have a fondness for both funds.

investor

[tibbitts]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

The active managers of Wellington and Wellesley have been getting it right for a long time... There are some active funds that are cheap and benefit from active managers. The best of both worlds... Having been retired for 16 years I have a fondness for both funds.

investor

Wellington hasn't been getting it right now for several years; they've been losing to their benchmark for the past 1 and 3 year periods. Hopefully the managers have been moved to the bottom floor, so when they jump, they won't hurt themselves.

Paul

[jeffyscott]

If "several" can mean 2, that may be correct. Wellington beat it's benchmark in each calendar year from 2000-2009: https://personal.vanguard.com/us/FundsS ... t=tab%3A1a

[tibbitts]

If "several" can mean 2, that may be correct. Wellington beat it's benchmark in each calendar year from 2000-2009: https://personal.vanguard.com/us/FundsS ... t=tab%3A1a

I was just going by this, which shows cumulative 3yr performance falling short of the benchmark as of the end of 2011:
https://personal.vanguard.com/us/funds/ ... st=tab%3A1

Paul

[BlueEars]

Do any investors reading this know how much Wellesley or Wellington change their mixes over the years of:
1) stocks/bonds
2) bond durations
3) percentage of international stocks
4) any other important attribute that varies with the years

Both M* and Vanguard offer good info on their current positions but I don't think I can get back issues of annual reports. Or can I?

[investor]

perhaps EDGARS (hope that is correct name) has the back issues, if Vanguard does not.

investor.

[BlueEars]

EDGAR only goes back 4 years and pruning the search seems a little difficult. I'm trying to get a general feeling for how Wellington changes over maybe 10 years.

[PB]

Bill,

I'm a big fan of Wellesley but you've put your finger on what makes me a little nervous in the current climate -- ie, about 62% bonds, but the average maturity is on the long side at 10%. As interest rates rise, perhaps the high div equity side will offset, together with the bonds' relatively low average credit quality.

I'm not selling, but the next few years should indeed be an interesting 'test' for the fund's active managers.

[btenny]

My main issue with looking at Wellesley is trying to decide what to do with my Dodge and Cox allocation. Way back in 2002ish I decided to use DODBX instead of Wellington or Wellesley as a part of my stock/bond allocation before I discovered the Bogleheads and indexing. Well DODBX was fine for 6 years and then blew up in my face in 2008. They changed managers when the old regime retired. The new people bought a very big position in Lehman after it went down but before it went BK. That cost the fund 3-4% of value immediately. Since then the fund has recovered a little but has not done anything worth while and seems to be making more bad decisions. I have sold half and am looking to sell the other half. Now I need to decide how to redo my asset allocation...

SO net net beware of manager errors in active funds. This can effect Wellesley as well......

Bill

[PB]

If you're not aware, Vanguard's Advisors site has a nice tool to compare up to 4 funds at a glance:



The url is:

https://advisors.vanguard.com/VGApp/iip ... roductcomp

[norookie]

I'd thought I'd posted in this thread already, I might not have, seeing I'd been in a rush yesterday. My reading the Wellesley Prospectus on P.19 says its active managers are betting a small % of its cash position, that the banks are coming back. IIRC it was 1.8% of its cash position was redeployed into BAC, HSBC, Deutschse Bank, and RBS. All banks, common or preferred, I know not. On 9/30/11. I know every town I've ever visited upon entry, has a Church, Temple or 2, a Bank, CU, or 2, and its taxation, and Town mgt, and safety authority all with in walking distance. I've always liked it, as an active position. <shrug> VG has some good active mgt funds too. "shudder" IMO . Can I post that on a INDEXERS board? :peace

[dbr]

I'd thought I'd posted in this thread already, I might not have, seeing I'd been in a rush yesterday. My reading the Wellesley Prospectus on P.19 says its active managers are betting a small % of its cash position, that the banks are coming back. IIRC it was 1.8% of its cash position was redeployed into BAC, HSBC, Deutschse Bank, and RBS. All banks, common or preferred, I know not. On 9/30/11. I know every town I've ever visited upon entry, has a Church, Temple or 2, a Bank, CU, or 2, and its taxation, and Town mgt, and safety authority all with in walking distance. I've always liked it, as an active position. <shrug> VG has some good active mgt funds too. "shudder" IMO . Can I post that on a INDEXERS board? :peace

This isn't an indexers board. Bogleheads like funds that have low costs and are tax efficient. Bogleheads also like diversified portfolios that don't try to market time or make risky bets that aren't justified by the expected return. Good (but not all) index funds, bought, held, and rebalanced meet many of these objectives. There are also funds that are not index funds that meet those objectives. Vanguard funds generally meet those objectives even when they are not index funds.

[norookie]

I'd thought I'd posted in this thread already, I might not have, seeing I'd been in a rush yesterday. My reading the Wellesley Prospectus on P.19 says its active managers are betting a small % of its cash position, that the banks are coming back. IIRC it was 1.8% of its cash position was redeployed into BAC, HSBC, Deutschse Bank, and RBS. All banks, common or preferred, I know not. On 9/30/11. I know every town I've ever visited upon entry, has a Church, Temple or 2, a Bank, CU, or 2, and its taxation, and Town mgt, and safety authority all with in walking distance. I've always liked it, as an active position. <shrug> VG has some good active mgt funds too. "shudder" IMO . Can I post that on a INDEXERS board? :peace

This isn't an indexers board. Bogleheads like funds that have low costs and are tax efficient. Bogleheads also like diversified portfolios that don't try to market time or make risky bets that aren't justified by the expected return. Good (but not all) index funds, bought, held, and rebalanced meet many of these objectives. There are also funds that are not index funds that meet those objectives. Vanguard funds generally meet those objectives even when they are not index funds.

I know dbr, I was just "funning". My posting abilities are lacking. Sorry to stray OTOP.

[dbr]

I'd thought I'd posted in this thread already, I might not have, seeing I'd been in a rush yesterday. My reading the Wellesley Prospectus on P.19 says its active managers are betting a small % of its cash position, that the banks are coming back. IIRC it was 1.8% of its cash position was redeployed into BAC, HSBC, Deutschse Bank, and RBS. All banks, common or preferred, I know not. On 9/30/11. I know every town I've ever visited upon entry, has a Church, Temple or 2, a Bank, CU, or 2, and its taxation, and Town mgt, and safety authority all with in walking distance. I've always liked it, as an active position. <shrug> VG has some good active mgt funds too. "shudder" IMO . Can I post that on a INDEXERS board? :peace

This isn't an indexers board. Bogleheads like funds that have low costs and are tax efficient. Bogleheads also like diversified portfolios that don't try to market time or make risky bets that aren't justified by the expected return. Good (but not all) index funds, bought, held, and rebalanced meet many of these objectives. There are also funds that are not index funds that meet those objectives. Vanguard funds generally meet those objectives even when they are not index funds.

I know dbr, I was just "funning". My posting abilities are lacking. Sorry to stray OTOP.

Indeed your actual point is quite correct. Even so, I suspect Bogleheads does have a misunderstood reputation of being an indexer's board when the fundamentals are more basic than that.

[tibbitts]

My main issue with looking at Wellesley is trying to decide what to do with my Dodge and Cox allocation. Way back in 2002ish I decided to use DODBX instead of Wellington or Wellesley as a part of my stock/bond allocation before I discovered the Bogleheads and indexing. Well DODBX was fine for 6 years and then blew up in my face in 2008. They changed managers when the old regime retired. The new people bought a very big position in Lehman after it went down but before it went BK. That cost the fund 3-4% of value immediately. Since then the fund has recovered a little but has not done anything worth while and seems to be making more bad decisions. I have sold half and am looking to sell the other half. Now I need to decide how to redo my asset allocation...

SO net net beware of manager errors in active funds. This can effect Wellesley as well......

Bill

It's amazing how many references were made to D&C on this forum (well, morningstar) before their issues in the downturn, and how few are made now. Absolutely Wellesley could have the same issues; it's equity positions are very concentrated.

Paul

[AgnosticInvestor]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

The active managers of Wellington and Wellesley have been getting it right for a long time... There are some active funds that are cheap and benefit from active managers. The best of both worlds... Having been retired for 16 years I have a fondness for both funds.

investor

Wellington hasn't been getting it right now for several years; they've been losing to their benchmark for the past 1 and 3 year periods. Hopefully the managers have been moved to the bottom floor, so when they jump, they won't hurt themselves.

Paul

The idea behind both funds, if I'm not mistaken, is to produce steady income through the (hopefully) judicious selection of dividend-paying stocks and high-grade credit in a 65/35 manner (Wellington) or a 35/65 manner (Wellesley). If that fails, at least they haven't brought calamity upon the heads of the shareholders because the mix is a conservative one and you're just talking about Beta (the Beta of mega-cap value and IG bonds). An interesting question is why hasn't any other company followed this. The low ER would be anathema to any active manager, but if the volume is high enough, that's not much of an issue.

[tibbitts]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

The active managers of Wellington and Wellesley have been getting it right for a long time... There are some active funds that are cheap and benefit from active managers. The best of both worlds... Having been retired for 16 years I have a fondness for both funds.

investor

Wellington hasn't been getting it right now for several years; they've been losing to their benchmark for the past 1 and 3 year periods. Hopefully the managers have been moved to the bottom floor, so when they jump, they won't hurt themselves.

Paul

The idea behind both funds, if I'm not mistaken, is to produce steady income through the (hopefully) judicious selection of dividend-paying stocks and high-grade credit in a 65/35 manner (Wellington) or a 35/65 manner (Wellesley). If that fails, at least they haven't brought calamity upon the heads of the shareholders because the mix is a conservative one and you're just talking about Beta (the Beta of mega-cap value and IG bonds). An interesting question is why hasn't any other company followed this. The low ER would be anathema to any active manager, but if the volume is high enough, that's not much of an issue.

Many companies did copy the model, to a large extent. Fidelity Puritan, for example, has had a similar allocation, modest (but slightly higher) expenses, and has outpaced Wellington returns for a number of periods since its 1947 inception.

Paul

[AgnosticInvestor]

Being in the right place at the right time, plus...superior security selection (issue selection for bonds, and stock selection for equities). Sometimes active managers get it right.

The active managers of Wellington and Wellesley have been getting it right for a long time... There are some active funds that are cheap and benefit from active managers. The best of both worlds... Having been retired for 16 years I have a fondness for both funds.

investor

Wellington hasn't been getting it right now for several years; they've been losing to their benchmark for the past 1 and 3 year periods. Hopefully the managers have been moved to the bottom floor, so when they jump, they won't hurt themselves.

Paul

The idea behind both funds, if I'm not mistaken, is to produce steady income through the (hopefully) judicious selection of dividend-paying stocks and high-grade credit in a 65/35 manner (Wellington) or a 35/65 manner (Wellesley). If that fails, at least they haven't brought calamity upon the heads of the shareholders because the mix is a conservative one and you're just talking about Beta (the Beta of mega-cap value and IG bonds). An interesting question is why hasn't any other company followed this. The low ER would be anathema to any active manager, but if the volume is high enough, that's not much of an issue.

Many companies did copy the model, to a large extent. Fidelity Puritan, for example, has had a similar allocation, modest (but slightly higher) expenses, and has outpaced Wellington returns for a number of periods since its 1947 inception.

Paul

Fair enough! Let me look into it. Love being proved wrong (not kidding). Being 'assured' is the death of any executive.

[tibbitts]

Fair enough! Let me look into it. Love being proved wrong (not kidding). Being 'assured' is the death of any executive.

Wellington wasn't always the Wellington we know today. It didn't always have the advantage of VG's unique corporate structure, and extraordinarily low expenses. Wellington went through periods of emphasizing growth vs. value, widely ranging stock/bond allocations, and was actually a high-expense load fund for many years of its existence.

Paul

[AgnosticInvestor]

Fair enough! Let me look into it. Love being proved wrong (not kidding). Being 'assured' is the death of any executive.

Wellington wasn't always the Wellington we know today. It didn't always have the advantage of VG's unique corporate structure, and extraordinarily low expenses. Wellington went through periods of emphasizing growth vs. value, widely ranging stock/bond allocations, and was actually a high-expense load fund for many years of its existence.

Paul

True, thanks...it was a growth fund in the 60s if I recall. It looks like Puritan has beaten it since 1947, which is great if you invested in Puritan in 1947, or 1950. Puritan has very high turnover and a growth bias, so I'd stay away.

[jeffyscott]

According to M* analysis, Wellington has been the Wellington of today since 1978:

In 1978, Vanguard took the fund back to the future by restructuring it into a disciplined, value-oriented hybrid fund that would keep asset allocation between 60% and 70% stocks and 30% and 40% bonds and refocus on the offering's roots as an investment vehicle that put equal priority on income generation, capital preservation, and capital appreciation.

[AgnosticInvestor]

According to M* analysis, Wellington has been the Wellington of today since 1978:

In 1978, Vanguard took the fund back to the future by restructuring it into a disciplined, value-oriented hybrid fund that would keep asset allocation between 60% and 70% stocks and 30% and 40% bonds and refocus on the offering's roots as an investment vehicle that put equal priority on income generation, capital preservation, and capital appreciation.

Hmm...excellent, thanks for the research!