Wellesley, "clones" and future prospects

[Kevin K]

I realize that venerable Wellesley has been around a lot longer than 1985, but I did think that this comparison of its performance with a couple of index fund "clones" as well as Vanguard LifeStrategy Conservative Growth was interesting:

https://www.portfoliovisualizer.com/bac ... ion4_3=100

This all came up in the context of someone without access to Wellesley in their IRA looking for options, and I found it interesting to see that 40% VIG and 60% VBIIX outperformed W on all metrics with a much lower ER to boot. Not to say the "secret sauce" of active management is necessarily overrated, but several friends who've owned substantial positions in Wellesley have been complaining in recent years about increasing opportunism and a bit of desperation in the tone of the fund's annual reports.

The miserable performance of the all-index, internationally-diversified LifeStrategy funds (and not just the Conservative Growth one) is unappealing but I suppose one could argue they're due for their day in the sun and that bets on a tiny slice of the bond and stock markets, all domestic, as well as substantial interest rate and credit quality exposure are unlikely to produce future results that resemble the past.

Any thoughts?

[Christine_NM]

Portfolio 1 is two funds so you'd have to keep them perfectly balanced at all times to have outperformed W since 1985 by a rather tiny margin. A few really bad days over the years where you didn't rebalance at the right time and the margin would be gone.

Agree that W is not for an entire portfolio because of the narrow slice issue.

[columbia]

In terms of the mix of stock and bonds, one could do a lot worse.

[willthrill81]

This all came up in the context of someone without access to Wellesley in their IRA looking for options, and I found it interesting to see that 40% VIG and 60% VBIIX outperformed W on all metrics with a much lower ER to boot.

Your analysis is only from 2007-2020. Wellesley started in 1972, IIRC.

I wouldn't be concerned in the slightest about Wellesley not owning hundreds or thousands of stocks. It's almost 50 years of very solid performance have shown that that number of stocks is not at all necessary to have good, stable returns. 65 stocks are plenty.

[Kevin K]

This all came up in the context of someone without access to Wellesley in their IRA looking for options, and I found it interesting to see that 40% VIG and 60% VBIIX outperformed W on all metrics with a much lower ER to boot.

Your analysis is only from 2007-2020. Wellesley started in 1972, IIRC.

I wouldn't be concerned in the slightest about Wellesley not owning hundreds or thousands of stocks. It's almost 50 years of very solid performance have shown that that number of stocks is not at all necessary to have good, stable returns. 65 stocks are plenty.

Thanks for the correction willthrill81! Now I feel like an idiot for even starting this thread given that I missed that the backtest was for so short a period as to be nearly useless.

Wellesley's (and for that matter Wellington's) track record speaks for itself. Even a dyed-in-the-wool indexer has to respect that kind of active management. And I agree that the relatively small number of stocks and bonds this fund holds isn't an issue - it's just that its narrow concentration in parts of the U.S. market where Wellington Group's skilled traders have been able to generate lots of alpha in the past may not yield similar success in the future given ultra-low interest rates and far fewer good dividend-paying equities, but if there's anyone I'd trust to outperform it would be this management group.

[Kenkat]

I think you have to realize that most of Wellesley’s “secret sauce” is very low turnover and very low expenses. This is pretty much the same secret sauce one finds in Vanguard’s index funds, so it’s not surprising that a comparable asset mix in index funds would closely mirror Wellesley’s performance over the long run.

[GaryA505]

Looks like 40% VTV/VVIAX and 60% BIV/VBILX is a closer approximation of the performance of Wellesley.

VTV/VVIAX Vanguard Value
BIV/VBILX Vanguard Intermediate-Term Bond

[GaryA505]

If you want to see something interesting, even a simple 35/65 mix of VTSMX and VBILX was about the same:

https://www.portfoliovisualizer.com/bac ... tion9_2=35

[Kevin K]

If you want to see something interesting, even a simple 35/65 mix of VTSMX and VBILX was about the same:

https://www.portfoliovisualizer.com/bac ... tion9_2=35

Yes. Using the oldest share class of that fund I could go back to 1994. It's also interesting to run the test from 2000-2020 which I like to use as kind of a recent litmus test since it captures both the dot.com and '08 market busts. I also included IT Treasuries substituting for the corporate bonds. Wellesley is still the risk-adjusted winner but the other portfolios did very well and have much lower ER's.

https://www.portfoliovisualizer.com/bac ... ymbol9=VIG

[GaryA505]

If you want to see something interesting, even a simple 35/65 mix of VTSMX and VBILX was about the same:

https://www.portfoliovisualizer.com/bac ... tion9_2=35

Yes. Using the oldest share class of that fund I could go back to 1994. It's also interesting to run the test from 2000-2020 which I like to use as kind of a recent litmus test since it captures both the dot.com and '08 market busts. I also included IT Treasuries substituting for the corporate bonds. Wellesley is still the risk-adjusted winner but the other portfolios did very well and have much lower ER's.

https://www.portfoliovisualizer.com/bac ... ymbol9=VIG

Isn't the CAGR calculated after the ER?

[Kevin K]

Yes, you are correct (I found the info in Portfolio Visualizer's FAQ's). Thanks for educating me about this.

[burritoLover]

Just say no to active management

[willthrill81]

Just say no to active management

Active management per se is not a real problem. Higher costs are the real problem. Bogle was very open to active management as long as the costs were low. He kept a sizable portion of his portfolio in Wellington.

[abuss368]

Just say no to active management

Vanguard has put in much of their literature that they are not "against" active management but rather higher costs.

Jack Bogle also talked highly of Dodge & Cox who were active managers. Their fees are much lower than the average active manager, have a long track record, and the managers invest along side fund shareholders.

[000]

Just say no to active management

Active management per se is not a real problem. Higher costs are the real problem. Bogle was very open to active management as long as the costs were low. He kept a sizable portion of his portfolio in Wellington.

Exactly.

[abuss368]

Just say no to active management

Active management per se is not a real problem. Higher costs are the real problem. Bogle was very open to active management as long as the costs were low. He kept a sizable portion of his portfolio in Wellington.

Exactly.

The less one pays = the more one keeps investing and compounding for themselves!

[tomd37]

I am wondering how the announced retirement of Michael Stack in June 2021 might impact the bond side of the Wellesley Income fund. My understanding that his co-manager since 2017 Loren Moran will take over managing the bond portion of the Wellesley Income fund.