Wellesley January Price Drop? Why?

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Shabber
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Wellesley January Price Drop? Why?

Post by Shabber »

I am trying to figure out what happened at the end of January that caused my beloved VWIAX to fall 4.6% in 10 trading days??
This is a huge index fund that is 2/3 bonds. What is blazes caused a move like this?

01/26/2018 $66.28
01/29/2018 $66.06
01/30/2018 $65.68
01/31/2018 $65.67
02/01/2018 $65.47
02/02/2018 $64.87
02/05/2018 $64.04
02/06/2018 $64.16
02/07/2018 $63.92
02/08/2018 $63.21
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Re: Wellesley January Price Drop? Why?

Post by livesoft »

Bonds. Simply bonds. Probably also confounded by the big run-up in January beyond all expectations. You do know the stock market dropped about 10% in those days, right?
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Re: Wellesley January Price Drop? Why?

Post by willthrill81 »

Both stocks and bonds dropped over that period. Wellesley is a great fund, one that experiences minimal volatility, but it isn't magic.
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Re: Wellesley January Price Drop? Why?

Post by Toons »

Try the Rip Van Winkle approach.
take a look in twenty years.
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02nz
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Re: Wellesley January Price Drop? Why?

Post by 02nz »

Wellesley is not an index fund.
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Re: Wellesley January Price Drop? Why?

Post by willthrill81 »

02nz wrote: Tue Apr 17, 2018 6:42 pm Wellesley is not an index fund.
Why does that matter?
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Re: Wellesley January Price Drop? Why?

Post by Spirit Rider »

willthrill81 wrote: Tue Apr 17, 2018 6:50 pm
02nz wrote: Tue Apr 17, 2018 6:42 pm Wellesley is not an index fund.
Why does that matter?
It may not be relevant to why Wellesley price declined in January, but it always matters when incorrect information is stated and it be corrected.
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Re: Wellesley January Price Drop? Why?

Post by david1082b »

It fell around 10% in the first week of October 2008. It is subject to the risks of the underlying holdings. Despite only having 30-40% in stocks, most of its price movements are still explained by the stock portion since stocks are very volatile compared to bonds usually.
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Re: Wellesley January Price Drop? Why?

Post by Shabber »

OK, I figured this out. Sorry for the post I feel dumb.
I looked at distributions before posting and made sure it wasn't that, but I just checked the Vanguard Total Stock Fund and it dropped 9.9% and Total Bond Fund dropped 1%. So Wellesley dropping 5% makes more sense.
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Re: Wellesley January Price Drop? Why?

Post by argulator »

I believe it's due to the fact that I convinced my wife to make her 17-18 Roth contribution on Jan 26th-it went through on the 29th. I warned my co-workers at the time :happy.
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Re: Wellesley January Price Drop? Why?

Post by aristotelian »

Both stocks and bonds dropped in January due to new that interest rates might rise faster than expected to reduce inflation. Wellesley is made up of stocks and bonds.
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Re: Wellesley January Price Drop? Why?

Post by dwickenh »

aristotelian wrote: Tue Apr 17, 2018 7:39 pm Both stocks and bonds dropped in January due to new that interest rates might rise faster than expected to reduce inflation. Wellesley is made up of stocks and bonds.
Sounds like a good time to buy more!!!
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Re: Wellesley January Price Drop? Why?

Post by RetireBy55 »

Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
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Re: Wellesley January Price Drop? Why?

Post by willthrill81 »

RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
Why on earth would you be concerned about the performance of a single quarter?
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Re: Wellesley January Price Drop? Why?

Post by RetireBy55 »

willthrill81 wrote: Wed Apr 18, 2018 4:23 pm
RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
Why on earth would you be concerned about the performance of a single quarter?
Easy - because there was a management change in 2017 and I'm wondering if the new crew knows what they are doing since this is atypical for the fund. I have a sizable investment in W.
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Re: Wellesley January Price Drop? Why?

Post by JBTX »

Wellsley has been a great fund and I have decent sized stake, but I kind of wonder if it is built for taking advantage of falling rates more than its peers. About the only time it has underperformed for any length of time was in late 70s and early 80s. It isn’t shocking that it has underperformed given the recent blip in interest rates.
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Re: Wellesley January Price Drop? Why?

Post by livesoft »

RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.
That's more than a year of relatively poor performance, so not just a single quarter.

It is pretty clear from reading this forum over the years that lots of folks buy Wellesley because of its past performance and not because of its asset allocation per se. It also has quite a lot of sticky shareholders who will pretty much never sell.
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Re: Wellesley January Price Drop? Why?

Post by ROIGuy »

JBTX wrote: Wed Apr 18, 2018 5:05 pm Wellsley has been a great fund and I have decent sized stake, but I kind of wonder if it is built for taking advantage of falling rates more than its peers. About the only time it has underperformed for any length of time was in late 70s and early 80s. It isn’t shocking that it has underperformed given the recent blip in interest rates.
This is from Morningstar fund analysis of Wellesley
"The fund has also shown it can weather repeated interest-rate increases by the Fed. Between June 2004 and May 2007, the Fed raised rates by 25 basis points on 17 separate occasions, hiking the overnight lending rate to 5.25% from 1.00%. During that three-year stretch, the fund's 9% annualized gain beat the category norm by nearly 2 percentage points."
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Re: Wellesley January Price Drop? Why?

Post by willthrill81 »

RetireBy55 wrote: Wed Apr 18, 2018 4:55 pm
willthrill81 wrote: Wed Apr 18, 2018 4:23 pm
RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
Why on earth would you be concerned about the performance of a single quarter?
Easy - because there was a management change in 2017 and I'm wondering if the new crew knows what they are doing since this is atypical for the fund. I have a sizable investment in W.
I still don't think that enough time has elapsed to make any determination whatsoever as to whether the fund has substantially changed. Considering that it's only been a year with new management, that shouldn't have any significant impact on the fund's performance yet. The new management hasn't overhauled the fund's investments since taking over, so there's no reason to think that the current underperformance is due to them.

I too have a significant holding in Wellesley, and I sleep very well at night holding it. It's gone through many managers over its 47 (48?) year history.
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Re: Wellesley January Price Drop? Why?

Post by lack_ey »

RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
1) overweight bond duration relative to category (rates rose slightly, longer duration lost)
2) overweight investment-grade corporate bonds relative to category (these did worse than Treasury bonds, MBS, and high-yield corporate)
3) overweight value stocks relative to category (growth stocks beat value stocks)
4) overweight bonds over stocks relative to category (stocks were a little better than bonds)

I'm not entirely sure of all of the above but it has a number of biases that detracted. I can't compute how much of the performance discrepancy is from these differences in passive exposures and how much is from security selection or moves made within these. But in any case, the spread is not that wide and it's not like you're looking at -4% compared to the category, even if in the worst decile.

Generally, < 1 year is much too short an evaluation window for looking at funds. Read the next annual report, in the very least.
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Re: Wellesley January Price Drop? Why?

Post by JBTX »

Mr.BB wrote: Wed Apr 18, 2018 5:27 pm
JBTX wrote: Wed Apr 18, 2018 5:05 pm Wellsley has been a great fund and I have decent sized stake, but I kind of wonder if it is built for taking advantage of falling rates more than its peers. About the only time it has underperformed for any length of time was in late 70s and early 80s. It isn’t shocking that it has underperformed given the recent blip in interest rates.
This is from Morningstar fund analysis of Wellesley
"The fund has also shown it can weather repeated interest-rate increases by the Fed. Between June 2004 and May 2007, the Fed raised rates by 25 basis points on 17 separate occasions, hiking the overnight lending rate to 5.25% from 1.00%. During that three-year stretch, the fund's 9% annualized gain beat the category norm by nearly 2 percentage points."
Well that could be because stocks were doing well, and Wellesley stocks allocation may have been better suited for that time frame. I honestly don’t know.

I think what i meant to refer to was a period where interest rates rise and stocks fall. From
1976-1980 the fund lagged peers substantially.
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Re: Wellesley January Price Drop? Why?

Post by tibbitts »

RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
Undeniably Wellesley hasn't been performing too well lately. But you seriously expect commentary from Vanguard? If you asked Honda, would you expect to have an engineer explain to you what's going on with their fuel dilution issue? I can hear the conversation now... "You work for me (thanks to your Total International allocation of course)! I demand to know what's wrong with these engines!" Honda: "Well, we thought we could save some money if we had a couple of unpaid high school interns design an engine using only their iphones... and oddly, that plan seems to have not worked out that well."

Perhaps the commentary in the upcoming semi-annual report will provide some insight.
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Re: Wellesley January Price Drop? Why?

Post by 02nz »

RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
Wellesley is a very good fund - used to own it myself but sold it to simplify AA. It seems that you're overreacting a bit to modest underperformance over a short period. Wellesley's long-term track record (top 3 percent in its category over the last 10 years) is still pretty impressive. With active funds (as with the market more broadly) you need to take a bit longer view. If you can't bear any period of underperformance, switch to all index funds.

I have another active fund that is in the top 1% of its category over the past 3, 5, and 10 year periods. Over the last month? Bottom 1%. I haven't called them to demand an explanation nor do I plan to do so. I'll let the managers do their thing. If and when I lose confidence (will take a lot more than a month), I'll simply sell it.
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Re: Wellesley January Price Drop? Why?

Post by willthrill81 »

02nz wrote: Wed Apr 18, 2018 7:11 pm
RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.

Like many close to ER, I have sizable investments in Wellesley and have always considered it my "sleep well at night" conservative fund.

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.

I've asked VG to comment and all they can do is point to past performance. Not good enough. I want to know what's going on THIS YEAR to make it under-perform so significantly (yes, I realize it holds a lot of long bonds..so do the others in it's category).
Wellesley is a very good fund - used to own it myself but sold it to simplify AA. It seems that you're overreacting a bit to modest underperformance over a short period. Wellesley's long-term track record (top 3 percent in its category over the last 10 years) is still pretty impressive. With active funds (as with the market more broadly) you need to take a bit longer view. If you can't bear any period of underperformance, switch to all index funds.

I have another active fund that is in the top 1% of its category over the past 3, 5, and 10 year periods. Over the last month? Bottom 1%. I haven't called them to demand an explanation nor do I plan to do so. I'll let the managers do their thing. If and when I lose confidence (will take a lot more than a month), I'll simply sell it.
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Any deviation from the market's holdings will, at some point, result in underperformance of the market. This may be short-term, and it may be long-term. Your advice is spot on; if you don't want to ever deviate from the market, then just hold the market. Otherwise, be prepared to underperform it at some point.
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Re: Wellesley January Price Drop? Why?

Post by Electron »

To see it doing so poorly relative to it's category so far this year is...disheartening...and I do wonder if it has something to do with the management changes in 2017.
It looks like the portfolio manager on the equity side has been with the fund for over ten years. Two credit specialists were promoted and joined the lead bond manager in 2017 as co-managers.

Comparing short term Wellesley performance to funds with 30-50% equity exposure may not be very meaningful especially after a sharp decline in stock prices. Funds with 30-35% equity exposure would be expected to outperform a fund with 40% exposure.

The top equity holdings in many value funds are somewhat of a surprise today. You may see technology stocks such as Microsoft and Intel in part because of the attractive dividends and the prospect for dividend growth. However, these kinds of stocks are typically more volatile than the dividend paying stocks held years ago. Utility stocks have risen in price significantly resulting in lower yields and a lot of risk should interest rates rise. Value managers really have a challenge today after many years of low interest rates with investors taking on more risk.

Wellesley Income is still performing quite well on a longer term basis. If you compare the ten year annual return (7.11%) to that of Vanguard Total Stock Market (9.47%), Wellesley has captured 75% of that return with only a 40% equity exposure. Note that the ten year return includes the large drop in equity prices in 2008-2009.

The nine year annual performance is also worth noting. Wellesley shows a nine year annual return of 9.50% versus 16.10% for the Total Stock Market. In this case, Wellesley has only captured 59% of the return of the Total Stock Market. However, 9.50% is a very attractive return by any measure for a fund with a 40% allocation to equities.

The ten year comparison may be showing a balanced fund at work. Rebalancing appears to have enhanced the return of the fund relative to the 100% equity fund.

The nine year annual return of 9.50% is unlikely to continue. It would be very interesting to apply John Bogle's simple forecasting models to a balanced fund with 40% equity exposure and see the result.
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Re: Wellesley January Price Drop? Why?

Post by dbr »

Spirit Rider wrote: Tue Apr 17, 2018 6:56 pm
willthrill81 wrote: Tue Apr 17, 2018 6:50 pm
02nz wrote: Tue Apr 17, 2018 6:42 pm Wellesley is not an index fund.
Why does that matter?
It may not be relevant to why Wellesley price declined in January, but it always matters when incorrect information is stated and it be corrected.
I assumed the idea is that by holding Wellesley you hire management that does not let things like this happen. Otherwise what is the point.

More seriously, the data needed is the historic standard deviation of daily returns to use to decide if the price drop is statistically unusual. Even then it may not mean much.
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Re: Wellesley January Price Drop? Why?

Post by TropikThunder »

RetireBy55 wrote: Wed Apr 18, 2018 4:15 pm Wellesley performance has been underwhelming this year, compared to other funds IN IT'S CATEGORY.

It's currently in the bottom 7% of all "Allocation - 30-50% equity" funds YTD according to M*.
I think this is an excellent example of why the Morningstar Star ratings are such a bad way to select funds. Look how broad that category is: 30-50% equity. No distinction between total market vs size tilts, no distinction between growth oriented and value oriented, no distinction between US and Int'l. And on the bond side, its 50-70% "Bonds" as if that was a monolithic term: no distinction between credit rating, duration, issuer, etc.

I quickly skimmed through the top 5 YTD for this category on M* vs Wellesley:
(note: it's not really the top 5, since there are multiple share classes of the Pioneer, Ivy and Franklin funds in the top 10)

Code: Select all

  					Stock					Large Cap	Bond		Issuer
Fund			               	US	Int'l	Bonds	Cash	"Other"	V/B/G*		Dur.	Credit	G/C/S**
VWIAX Vanguard Wellesley		33%	6%	58%	3%	1%	48/26/23 	6.60	A	11/41/3
PMFKX Pioneer Multi-Asset Inc.		17%	30%	31%	9%	13%	64/15/3 	1.63	B	5/27/10
IMURX Ivy Apollo Multi-Asset Inc.	17%	31%	44%	4%	5%	36/26/23 	3.50	B	0/39/3
RGYTX Russell Inv Multi-Strategy Inc.	13%	11%	44%	22%	10%	23/17/13 	2.05	BB	3/36/12
FTCZX Franklin Conservative Alloc.	27%	15%	48%	7%	4%	21/23/27 	3.11	BB	14/16/18
I'm no whiz at tables, but this is just to show that even within the M* category of "30-50% Equity Allocation", you're not comparing apples to apples. Note the range of stock/bond, US/Int'l, the different style boxes, bond duration and credit, and gov't/corp ratios. Not to mention the significant allocations to "other" that I couldn't decipher off of M*.
*V/B/G = Value/Blend/Growth style boxes for Large Cap
**G/C/S = Gov't/Corp/Securitized for Bond Issuers
http://news.morningstar.com/fund-catego ... CA$CA.aspx

So I put no stock (pun intended :P ) in Morningstar rankings.
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Re: Wellesley January Price Drop? Why?

Post by Electron »

TropikThunder wrote: Fri Apr 20, 2018 11:35 pmI think this is an excellent example of why the Morningstar Star ratings are such a bad way to select funds. Look how broad that category is: 30-50% equity. No distinction between total market vs size tilts, no distinction between growth oriented and value oriented, no distinction between US and Int'l. And on the bond side, its 50-70% "Bonds" as if that was a monolithic term: no distinction between credit rating, duration, issuer, etc. I quickly skimmed through the top 5 YTD for this category on M* vs Wellesley:
Thanks for pointing out the large variation in funds within the same Morningstar category. I hadn't looked at the categories in detail before or realized that they covered funds with so many different characteristics. The rank of any fund within a broad category doesn't seem very useful possibly with the exception of the longer term returns. One would have to expect the shorter term comparisons to be all over the map.

Your post prompted me to try the Morningstar Fund Screener and I was able to list the same funds you mentioned based on year-to-date performance. It looks as though you did some manual work to list the portfolio characteristics for each fund. It's too bad that the Fund Screener can't include that kind of additional information.

I noticed that the Vanguard Total Stock Market fund is placed in the Large Blend category and the comparison is not unlike what you described for Vanguard Wellesley. It's unfortunate that some of these funds can't be compared with a category with very similar characteristics. One solution might be a detailed fund comparison after a number of candidates are identified. One interesting and expected result does come up when evaluating the Total Stock Market fund within the Large Blend category. It is easy to see that the Total Stock Market fund outperforms the average fund in the category on a longer term basis which is why index funds are generally recommended.
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