Just a couple of notes correcting misinformation from earlier in this thread:
1. Wellesley's bonds are mostly corporate, with only ~15% Treasuries.
2. Average effective maturity of bonds at the moment is 9.9 years, vs. 5-7 years for Vanguard's IT Treasury and Bond funds, so the yield curve and interest rate sensitivity are indeed well out of the intermediate range.
3. Expense ratio for Wellesley Admiral shares is .16 - more than the rock bottom .05 level of Total Stock Index Admiral but on par with any of their Target retirement or Lifestrategy funds and about the same as a typical three or four fund all-index portfolio at Vanguard.
I'm suspect I've said this before, but I think Wellesley's consistent risk adjusted outperformance (Alpha) has as much to do with
their bond picks as stock picking.
The bond market is bigger than the stock market, it trades less frequently, and bid ask is wider on the corporate bonds than stocks or government bonds.
I think this makes it the perfect market for active management.
Looking at the big pictures, if I have a portfolio and I'm looking to generate income, I can loan money to a government or corporation and collect interest, or I can take an equity position and generally collect dividends.
Most people decide on AA between stocks and bonds and stick it in index funds. A fair number cheat a bit and decide to allocate more to international, or small caps, or value. There are also a decent number of active stock pickers on this board. I know many of us have a least respectable track record. I can think of only two people in my time on the board who active bond pickers. I followed some of recommendations of one of the guys (Brewer) and I can say that unless Sallie Mae goes broke in the next two years, his recommendation far outperformed similarly rated bonds.
So I think it's not unusual for bond traders who are able to beat the average (It's how Michael Lewis made his early money).
In contrast, Wellesley is constantly looking at both stocks and bonds and deciding what is the best way to get income from a corporation, buy bonds or buy stocks. I'm a pretty sophisticated investor, but I'm pretty clueless on how to determine I'm a better of buying Wells Fargo stock with 3.1% yield or Wells Fargo 2025 bond with the same yield. I suspect that most firms and fund managers that only buy bonds or only buy stocks aren't be that much smarter.
So moving forward, I think Wellseley will continue to provide Alpha because their balanced approached to stocks and bonds is pretty unique and not easily replicated.