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Wellesley and rising interest rates
Old 01-13-2014, 11:45 AM   #1
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Wellesley and rising interest rates

There have been many posts on this board concerning reducing your holdings in bond funds since interest rates basically have to rise at some point. I know Wellesley has a great track record. But since they are about 60% invested in bonds, I'm a little concerned about how it will do the next few years if interest rates spike. My thinking is there will be some fluctuations in the short term, but long term should be fine. Any other thoughts? I'm wondering how that fund did in the late 1970's and early 1980s.
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Old 01-13-2014, 12:11 PM   #2
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https://personal.vanguard.com/us/fun...FundIntExt=INT

Vanguard lists the duration of the bond portion of the fund as 5.8 years, so there is non-trivial exposure to rates.
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Old 01-13-2014, 12:17 PM   #3
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Also, since Wellesley's equity portion tends to be focused on dividend-paying stocks, you may see a slump there too.
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Old 01-13-2014, 12:31 PM   #4
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You need to look no farther than 2013 results to see the kind of damage rising interest rates can do to an income-focused fund like Wellesley. VWINX returned 9.19% for the year. In comparison, a simple-minded 60-40 mixture of total bond market and S&P500 index would have returned about 11.6%. That roughly 2.5% underperformance is quite uncharacteristic of Wellesley's long term performance, so I attribute it to a combination of heavy bond exposure and high dividend equities.
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Old 01-13-2014, 12:50 PM   #5
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Meanwhile Wellington which has more stocks than bonds closed to new investors. Its return was 19.76% in 2013 against Wellesley' 9.27% (performance of Admiral shares). I wonder how its bond composition compares with that of Wellseley.

PS. Here's the performance of the two funds.

2008 2009 2010 2011 2012 2013 2008-2013
VWENX -22.23 22.34 11.04 3.95 12.67 19.76
48.2
VWIAX -9.79 16.14 10.71 9.74 10.10 9.27
40.5

Wellesley is more stable than Wellington. What will happen next in 2014? One has to choose his poison and drink it. Heh heh heh...
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Old 01-13-2014, 01:27 PM   #6
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The bulk of our investments are in Wellington and Wellesley and in light of the persistent predictions of an imminent rise in interest rates that we've repeatedly heard over the past several years I have given much consideration to "doing something". Unfortunately I cannot figure out what that "something" is.

I'm hooked on the dividends these funds pay and really dislike the idea of selling them - to buy what? My track record in making moves like this is dismal. So, I think I'm going to simply keep what I've got and "dance with who brung me". My hope is whatever unpleasantness befalls these funds will be transitory and relatively short-lived.
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Old 01-13-2014, 01:32 PM   #7
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I am not too worried about Wellesley, given its track record. Maybe I should be, but I'm not.

That said, I would never invest over 30% in any one fund. I have 30% in Wellesley.
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Old 01-13-2014, 02:03 PM   #8
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I think Wellington is still open to retail investors. A back of the envelop calculation looks like Wellesley did a bit better than a 33/64 mix of S&P and total bond market. The conservative active management can add value in a rising interest rate environment, should such a scenario ever come about.
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Old 01-13-2014, 02:32 PM   #9
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I have 15% of my portfolio in bonds equally divided between Wellesley and Vanguard Intermediate Investment Grade. I don't plan on accessing these funds for at least 10 years so I'll just keep reinvesting the dividends and ride out any interest rate increases. The rest of my fixed income is in a stable value fund returning 2.6% and TIAA-Traditional currently returning 3.75%, but I want to keep something in the bond market for diversity and as my time scale is about twice the bond fund average duration I'm not overly concerned about interest rate.
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Old 01-13-2014, 02:37 PM   #10
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I am not too worried about Wellesley, given its track record. Maybe I should be, but I'm not.

That said, I would never invest over 30% in any one fund. I have 30% in Wellesley.
I don't think it's an issue of being "worried" about Wellesley as in "worried" that it might fail or have large losses. I think it's an issue of whether the duration of the 60% bond holdings might cause Wellesley to underperform during the next few years. That seems to have been the case in 2013 when Wellesley underperfomed a passive index fund benchmark.

I think Wellesley is a great long term holding for us conservative geezers and I have some in my defered accounts. But I'm guessing that 2014 and 2015 will not be stellar years for Wellesley.

I don't have a better idea for my Wellesley dollars, so no action here.
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Old 01-13-2014, 02:47 PM   #11
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At this point, Wellington is twice as large as Wellesley, with assets of $80B vs. Wellesley's $35B. I wonder if the ratio has always been the same, or it has changed recently.

One of my routines everyday after the market closes, particularly when a big movement occurs, is to see how Wellington and Wellesley move relative to one another (I own a bit in both), and to my own portfolio.

Speaking of big movements, the Dow drops 184 points as we speak and is still going. Exciting time!
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Old 01-13-2014, 02:52 PM   #12
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Speaking of big movements, the Dow drops 184 points as we speak and is still going. Exciting time!
Good timing for me, if we are indeed headed for a significant correction. I've already finished all of my year-end rebalancing, so I'm ready to ride out any downturn and hopefully find some bargains down the road.
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Old 01-13-2014, 03:44 PM   #13
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Meanwhile Wellington which has more stocks than bonds closed to new investors.
I bought VWELX for the first time just last week... How could it be? I am not complaining. I am just wondering what it means by "closed to new investors".... Does that (close to "new" investors) mean "new" to VG? (I don't know this investing stuff much...)
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Old 01-13-2014, 04:04 PM   #14
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I don't know either.

OK, here's the story. There was a thread here last year about Wellington being closed to new investors. I just now look in Morningstar, and under "Purchase Constraints" it still shows "Closed to new investments", whatever that means.

I go to Vanguard and look, but see nothing about any restriction for Wellington. So, what is going on? Perhaps now that Wellington also trails the S&P and many other funds, investors now chase performance and flock elsewhere because they do not know that balanced funds are supposed to lag the market some years, and lead it in others, and the fund has reopened?
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Old 01-13-2014, 04:14 PM   #15
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OK, here's the story. There was a thread here last year about Wellington being closed to new investors.
Shhhhh...Wellington closes to new investors...
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Old 01-13-2014, 04:20 PM   #16
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Here's a link to the historical performance of Wellington. Scroll down to see all years back to 1929. Seems as though they did OK during previous bond bear markets.

VWELX Performance Overview | Vanguard Wellington Income Fund Stock - Yahoo! Finance

and here's the link for Wellesley back to 1970.

http://finance.yahoo.com/q/pm?s=VWINX+Performance
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Old 01-13-2014, 06:59 PM   #17
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So, today S&P is down -1.26%, Vanguard Total Bond VBMFX up 0.19%.

Wellesley down -0.25%, while Wellington is down -0.66%. I will not know my own number until my wife's 401k MF report is in, but of my stock portion alone, it's -1.05% or a bit better than S&P.
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Old 01-13-2014, 07:14 PM   #18
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So, today S&P is down -1.26%, Vanguard Total Bond VBMFX up 0.19%.

Wellesley down -0.25%, while Wellington is down -0.66%. I will not know my own number until my wife's 401k MF report is in, but of my stock portion alone, it's -1.05% or a bit better than S&P.
Let me know the results after 10 years
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Old 01-13-2014, 07:18 PM   #19
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Wish I know that number now, rather than having to wait 10 years.

I certainly can tell you the 10 years earlier, but of course past performance does not count.

So, I can only check every day, and look at the numbers as they come in.
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Old 01-13-2014, 10:14 PM   #20
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I like Wellesley. I also like Wellington.

After examining all of the options for years, I eventually decided that my retirement fund(s) would initially be divided among four accounts:

3 years worth of expenses in Wellesley from which I would draw annually. Wellesley averages pretty decent returns with a lower level of risk and is not very volatile. Will this change in a rising rate environment? Maybe. Maybe not.

Years 4 thru 25 in Wellington for longer term growth. I like the kind of returns this fund has seen in the past and while it's a bit more volatile than Wellesley it's not too bad.

Years 26 and beyond in Vanguard Healthcare fund and Vanguard Energy fund. I like these funds because I think they are capable of some really impressive returns over a very long term. Much more volatile, of course, but with 25 years as a buffer should do well.
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