VWINX has had 40 calendar years of positive returns and only 6 negative years. Its worst year by far was 2008 (-9.8%), which was top quintile of the class.
Since inception, VWINX has averaged 9.8% annual return. Quite impressive.
Looking at the bond portion (approx. 60% of portfolio), I see only 17% in govt bonds (I assume these are Treasuries), with Corporate bonds at 72% of the bond total. For some reason, I thought this fund held more Treasuries.
Effective duration 6.5 yrs
Effective maturity 9.5 yrs
Are there any concerns about VWINX's bonds being a drag in the next few years, as they are not really short-duration overall? Or better to side with the solid long-term return history of VWINX and just ride things out in this "conservative" vehicle?
I'd be extremely happy with 5% or 6% per annum, with no major heart attacks along the way. Just looking for devil's advocate here. WHY SHOULDN'T I BUY THIS FUND assuming those are my goals?
Any input appreciated.
-Joe
Comments
Long-Term Growing Income From An Open-End Mutual Fund: Is This Possible? long-term-growing-income-open-end-mutual-fund-possible
VWINX average return over life (since 7/1/1970): 9.81%
FCNTX average return over life (since 5/17/1967): 12.39%
FBNDX average return over life (since 8/6/1971): 6.94%
To see how $10K did each way, my guess is that for VWINX, you took something like:
$10K x (1 + 0.0981) ^ 45 ~= $670K (45 years)
For Contra you may have used: $5K x (1 + 0.1239) ^ 45 ~= $960K
For IG Bond you may have used: $5K x (1 + 0.0694) ^ 45 ~= $100K
So the "50/50" starting amount grew to around $1.06M, not quite double $670K, but not that far off.
The problem with this back of the envelope calculation is that you've now got an investment that's 90%+ equity. You've not mirrored the asset allocation of VWINX. To do that, you'd need to rebalance periodically. To do that accurately, you'd need to know how much each fund returned each year, since bonds would outperform equities from time to time and you'd have to sell bonds, not equities to rebalance.
Nevertheless, since we're doing really crude calculations, we can simply assume that the returns each year are the same. So each year, the 50/50 blend would return the average of the two returns: (12.39% + 6.94%) / 2 = 9.665%, or a tad less than VWINX.
Don't forget to check on the loads. I believe all three of these funds had loads back in 1971.
But anent your as-always complex 'hunch' of what I did, uh, I added $10k-growth totals for the same timeframe (starting sometime early in 1971, forget when) and divided by two. And then compared that with the same for the Vang.
I bet a nickel you can find something wrong with that too. Do as I did and doublecheck, find what is off about it, and report.
For real rigor I could've weighted them 40-60 instead of 50-50, but this was hasty M*-based envelope back, yeah.
+++ Actually, let me continue, since this sort of response gets tiresome; I will try and spell it out, and then you can tell what is off about it.
Since 10/1/71, the start of the Fido bond fund, it has grown $10k to $215,945. If I am reading the M* graph right.
Since then, FCNTX has grown $10k to $2,478,356. Ditto.
Looks to me as though if you had half your eggs in each, you would have grown to $1,347,151. Does that look right to you?
This is 50-50, so 60-40 would be different, yes.
Whereas if you put all your eggs in the Vanguard, your total would be $700,267.
Again if my math is right, the Fido total appears to be 1.92 x the Vanguard total. Si?
Less if 60-40.
Taxes, loads, rebalancing consequences, manager changes, and all else are overlooked, yes.
The Fido equity portion is cherrypicked for sure. I mean, FCNTX.
If I were really interested in pursuing this, I would pick Fidelity Trend or Fidelity fund or Magellan or some other hoary hoary Fido entity. Or DODGX, or CSENX, or SQUEX, or that Clipper thing, or (insert favorite ancient fund here). Wonder how that would go against Vanguard 40-60.
$5K x equity growth + $5K x bond growth, or
($10K x equity growth + $10K x bond growth) x 1/2
Same result. Multiplication is distributive over addition.
You seem to be missing the overwhelming significance of not rebalancing. To simplify the arithmetic and make the effect easy to see over a few iterations (years), let's use these exaggerated hypothetical returns:
Each year the equity fund doubles. Each year the bond fund returns 10%. Each year the hybrid fund returns 60%. I think you'll agree that aside from the magnitudes, I've preserved the general relationship - largest returns for equity, hybrid fund returning just over the average of the equity and bond returns.
We'll use $5K for each of the equity and bond funds, since then we don't have to divide by 2 at the end of every step. Keeps arithmetic simpler.
Year 0: $5K equity + $5K bond, vs. $10K hybrid
Year 1: $10K equity + $5.5K bond, vs. $16K hybrid. Hybrid ahead by $0.5K.
Rebalance - we're trying to emulate a hybrid fund, so we rebalance for the same allocation
Year 1: $7.75K equity + $7.75K bond, vs $16K hybrid.
Year 2: $15.5K equity + $8.525K bond, vs. $25.6K hybrid. Hybrid ahead by $0.975K
Rebalance.
Year 2: $12.0125K equity + $12.0125K bond, vs. $25.6K hybrid.
Year 3: $24.025K equity + $14.21375K bond, vs. $40.96K
At this point, the hybrid is ahead by $3.72125K.
The hybrid lead is accelerating, as one would expect because its yearly outperformance of 5% (60% vs. the average 55% of the stock and bond funds) compounds year after year.
You can't say on the one hand that you want to keep a constant 50/50 mix (or 40/60 or whatever), and on the other hand say that you don't care, you're going to let your portfolio become equity heavy. Look at the actual fund figures. Without rebalancing, the portfolio evolves into one that's over 90% equity ($2,478,356 vs. $215,945).
In the 46th year, this 90/10 portfolio will pull away even further from the 40/60 hybrid. But 90/10 is not the mix that the investor wants to hold, year in, year out.
I own VWELX, but I'm looking at tactical allocation and world allocation funds vs true blue balanced funds for my non-stock exposure. Past performance is not a guarantee of future performance. If we keep doing hindsight analysis then based on how far back we go we might come up with different conclusions. Over last 10 years I believe VWINX and VWELX have returned about the same but VWINX has been less volatile because it has less stocks and more bonds, and because interest rates have been generally falling. The below chart is food for thought.
"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."
For the next several years, I would guess that the performance of VWINX would be driven more by the equity markets than the rising bond rates. Performance versus its peers would likely mirror its past.
At least my money is riding on that.
I thought this 10k growth interesting (but again 50-50 Fido, so not altogether appropriate), and again not real-time-rebalanced:
Start date fall 1981: V = 362, F = 523k
same 1991: V = 81k, F = 111k
same 2001: V = 29k, F = 33k
same 2011: V = 16k, F = 18k
last 3y: V = 12k, F = 12.5k
1y: V = 11k, F = 11k
ytd: V = 10, F = 11
So the decision is b/w the discipline of rebalancing (which is nicely automatic w Vanguard) or the discipline of letting profits run / leaving alone.
My comment to JoeD was that the performance of VWINX may be influenced more by the performance of equities as opposed to rising interest rates, which appeared to be his greater concern.
VWELX has limited access, to the best of my knowledge; without a Vanguard account. This fund ( VWELX ) is also more oriented towards a larger percent allocation to the equity portion. I can not purchase via Fidelity, but I have purchased VWINX.
Summary
Some really good actively managed funds are being overshadowed in the current index fund craze.
Vanguard Wellesley Income is a nearly 50-year old fund with a stellar track record of delivering shareholders strong returns while limiting downside risk.
This fund may particularly appear to retirees given its 3% dividend yield and its history of limiting shareholder losses in down markets.
With so much attention focused on the billions and billions of dollars flowing into passively managed index ETFs, you might be surprised to find that actively managed mutual funds still exist! But they do, although the reasons that this segment of the market is shrinking are easy to understand.
For most funds, the cost of active management continues to be prohibitive. The average expense ratio for an actively management large cap mutual fund is around 1.25%. The average for an S&P 500 index fund? About 0.15%. That difference of over 100 basis points annually combined with the difficulty of trying to consistently pick outperformers over time has proven a steep hill to climb. Roughly 80% of active funds fail to match their benchmarks over time.
But not all active funds should be kicked to the curb. Some funds have great long-term track records, low expenses and smartly managed portfolios. At Vanguard, one of their oldest funds is also one of their best.
The Vanguard Wellesley Income Fund (MUTF:VWINX) is a nearly 50-year old fund that maintains a balance of around 60-65% bonds and 35-40% stocks. The mix of investment grade bonds and large-cap stocks makes it an ideal choice for retirees, those planning for retirement or new investors right out of the gate.
This is particularly intriguing for folks in or near retirement who may not have a great deal of time or resources in order to bounce back from a significant market decline.
The S&P 500's biggest drawdowns occurred during the tech bubble and the financial crisis. In each of those situations, the index retreated around 45-50% off of its near-term highs. The Wellesley Fund on the other hand has only twice experienced a drop of 15% over its five decade history and one of those times wasn't even during the tech bubble.
The other factor I look at is the fund's downside risk. How well does the fund protect investors when the market's winds start shifting? In Wellesley's case, pretty darn well.
In almost every long-term period, the fund has been able to deliver category-matching returns when the bulls take hold, while reducing market losses by around one-third when things start heading south. The one exception has been in the last year when a number of the biggest tech growth names have provided market leadership.
Digging into the fund, the fund's 0.22% expense ratio (0.15% if you qualify for the fund's Admiral shares) falls well below the Lipper category average of 0.81% and remains true to Vanguard's low-cost theme. Dividend seekers will enjoy the fund's 3.1% yield, a number that's boosted by its focus on corporate fixed income issues over government bonds (about 85% of the fund's bond holdings are corporate). The bond portion's 6.5 year duration is a little on the long side but provides a nice balance between yield and risk.
One important note to make is concerning the fund's long-term average annual returns. Wellesley boasts a nearly 10% annual return over the life of the fund, but investors should be cautioned against expecting those returns going forward. Those returns have been boosted by one of the longest fixed income bull markets in history and an equity market that continues to hit record highs and has not posted a calendar year loss since the financial crisis. With stocks looking relatively expensive and interest rates looking to continue heading higher, shareholders may want to temper expectations in the near-term. Investors looking for a heavier equity allocation might want to consider the Vanguard Wellington Fund (MUTF:VWELX).
Conclusion
Wellesley Income continues to be one of Vanguard's shining stars. The fund remains a popular option in workplace retirement plans so savers who don't have access to good index fund options (or even if you do) might consider this as a core 401(k) holding.
Even in the current era of index fund popularity, Vanguard Wellesley Income should be considered just as good a fund as you'll find in the marketplace today.
[seekingalpha.com]
Depending on your opinion regarding the likelihood of full funding of Social security, you might weigh PONDX less heavily, but I think dividing your equity holdings between WMVFX and DSENX may work best for the far future.
In my Scottrade IRA, I keep a few "income" funds. I don't trade them. Not that I'm retiring, but just use remaining money to get in/out of stocks while I keep part of it always invested in income funds. VWELX/VWINX would be swell to own in this portfolio, but I just don't have that option. I'm making do with RNDLX, SIRIX, ETNMX, MAINX, RPHYX, RSIVX, PLMDX (for now) and IRNIX (contemplating)
Are you suggesting VMVFX?
WMVFX doesn't exist yet unless you are rolling it out here first on MFO.
By the way I do like the risk reward profile of VMVFX. A fairly new fund from Wanguard...Good choice.
VMVFX is an global equity fund with no bond exposure. The Admiral share, VMNVX, has a very low expense ratio 0.17%. As bee pointed out, the risk profile is excellent for equity funds.
As for income investors, there are many choices and risk that one needs to consider carefully.
I have been (rightly or wrongly) persuaded by the solid arguments against the notional diversification rationales for foreign equity investing.