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Wellington/Wellesley
Old 08-26-2015, 07:46 AM   #1
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Wellington/Wellesley

I hold both these Vanguard stalwarts and they are probably my largest holdings. I am starting to wonder however about their bond sleeves, with durations of 6.3 yrs (as of 7/2015). I think the managers have reduced duration a little over the past year, but am concerned that when rates start to move, these funds may get slammed. I suspect these funds are so large, it will be difficult for Wellington mgmt to shorten duration at a faster pace. Anyone else concerned about this?
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Old 08-26-2015, 07:53 AM   #2
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I hold both these Vanguard stalwarts and they are probably my largest holdings. I am starting to wonder however about their bond sleeves, with durations of 6.3 yrs (as of 7/2015). I think the managers have reduced duration a little over the past year, but am concerned that when rates start to move, these funds may get slammed. I suspect these funds are so large, it will be difficult for Wellington mgmt to shorten duration at a faster pace. Anyone else concerned about this?
Not really as I intend to reinvest all the distributions and not touch my Wellesley for more than 10 years.
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Old 08-26-2015, 08:00 AM   #3
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I don't think it pays to second guess your fund managers - and in a balanced fund they will be rebalancing for you.

I also don't think it's clear that intermediate bonds will suffer much even if short term rates rise. They certainly won't if rate rises cause an economic slowdown.

I don't think your fund managers will move to short term bonds - they would already have done so. I think they've concluded intermediate bonds are better value looking at the whole portfolio allocation.
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Old 08-26-2015, 08:05 AM   #4
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Those two funds make up roughly 85% of my portfolio. I'm not worried about it.
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Old 08-26-2015, 08:35 AM   #5
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Wellington Management sure has a good track record since 1928 when Wellington was founded. I hope/assume that they will continue to do a good job of managing Wellesley and Wellington.

That said, despite my enthusiasm for Wellesley it is only 30% of my AA. I just refuse to have more than 30% of any one fund, especially an actively managed fund. The rest of my portfolio is comprised of index funds.

I do expect Wellesley to be affected if/when rates start to increase. I have been reading about this problem being imminent for years, during which time I have done nothing and benefited greatly from Wellesley dividends quarter after quarter. Still, I don't doubt that Wellesley could run into trouble. I hope/assume that the rest of my portfolio can buoy up Wellesley if/when necessary, and that Wellington Management will do the best they can to keep any downwards slide at a minimum.
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Old 08-26-2015, 09:35 AM   #6
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Those two funds make up roughly 85% of my portfolio. I'm not worried about it.
+1 Wellington Mgt has been around for quite awhile. Bond holdings fairly light in Govt compared to say VG's Total Bond Market Index (+/-20% vs. +/-63%).
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Old 08-26-2015, 09:51 AM   #7
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+1 Wellington Mgt has been around for quite awhile. Bond holdings fairly light in Govt compared to say VG's Total Bond Market Index (+/-20% vs. +/-63%).
If we have another scare, the flight to quality can be expected to benefit govt bond prices more than corporate issues, so I'm not sure this is a point in Wellington's favor under those circumstances.

I also don't know how much the Wellington managers are going longer in order to get slightly higher yields--are they under pressure to deliver returns today and perhaps hoping that they don't get stung by higher rates/loss in bond portfolio (or that it happens on someone else's watch)?

They have a good record, but I think it is probably a good idea to limit one's bets on Wellesly/Wellington and diversify with index funds in case their experts are wrong. It happens.
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Old 08-26-2015, 10:05 AM   #8
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I hold both these Vanguard stalwarts and they are probably my largest holdings. I am starting to wonder however about their bond sleeves, with durations of 6.3 yrs (as of 7/2015). I think the managers have reduced duration a little over the past year, but am concerned that when rates start to move, these funds may get slammed. I suspect these funds are so large, it will be difficult for Wellington mgmt to shorten duration at a faster pace. Anyone else concerned about this?
I spoke with VG on several occasions regarding bond holdings in general and it sounded that their overall position - not to focus on sort term bonds price adjustments and manage AA based on individual risk tolerance. I do have large positions in both funds as well and feel that they know what they are doing
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Old 08-26-2015, 12:21 PM   #9
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How much is "slammed"?

The rough rule of thumb for individual bonds is that a 1% interest rate increase will cause the bond price to lose 1% per year to maturity. So if I rather loosely apply that to a 6.3 year average duration and a 2% interest rate increase, that might result in a 12.6% price drop. Not as slammed as stocks can get. And longer duration bond rates are more affected by inflation expectations than short-term Fed rates. Also, as long as you or the bond fund doesn't have to sell any bonds, you are still getting your original income and you will get all of your principal at maturity.

I wouldn't be too concerned about Wellington and Wellesley.
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Old 08-26-2015, 12:22 PM   #10
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They have a good record, but I think it is probably a good idea to limit one's bets on Wellesly/Wellington and diversify with index funds in case their experts are wrong. It happens.
This is more or less my thought as well and I don't have nearly as much in these funds vs what others have mentioned in this thread. I suppose if short term rates spike and longer term rates remain relatively flat, Wellington Management may be making the right bet.
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Old 08-26-2015, 01:00 PM   #11
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If we have another scare, the flight to quality can be expected to benefit govt bond prices more than corporate issues, so I'm not sure this is a point in Wellington's favor under those circumstances.

I also don't know how much the Wellington managers are going longer in order to get slightly higher yields--are they under pressure to deliver returns today and perhaps hoping that they don't get stung by higher rates/loss in bond portfolio (or that it happens on someone else's watch)?

They have a good record, but I think it is probably a good idea to limit one's bets on Wellesly/Wellington and diversify with index funds in case their experts are wrong. It happens.
I'll stay with them, as I don't see them changing their very long standing management style anytime soon under Vanguard. They have a long record (Wellington has one of the longest) of delivering growth with relative safety. All bonds will suffer if/when things change as feared, but believe I stand the best chance of coming out OK with their professional management.
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