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08-26-2015, 06:46 AM
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#1
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gone traveling
Join Date: Sep 2003
Location: DFW
Posts: 7,586
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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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08-26-2015, 06:53 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by DFW_M5
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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Not really as I intend to reinvest all the distributions and not touch my Wellesley for more than 10 years.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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08-26-2015, 07:00 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,008
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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.
__________________
Retired since summer 1999.
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08-26-2015, 07:05 AM
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#4
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Full time employment: Posting here.
Join Date: Jan 2014
Location: Austin
Posts: 661
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Those two funds make up roughly 85% of my portfolio. I'm not worried about it.
__________________
ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
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08-26-2015, 07:35 AM
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#5
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
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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.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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08-26-2015, 08:35 AM
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#6
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Full time employment: Posting here.
Join Date: Nov 2009
Posts: 592
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Quote:
Originally Posted by Looking4Ward
Those two funds make up roughly 85% of my portfolio. I'm not worried about it.
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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%).
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08-26-2015, 08:51 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Quote:
Originally Posted by fritz
+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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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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08-26-2015, 09:05 AM
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#8
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Full time employment: Posting here.
Join Date: Apr 2010
Posts: 717
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Quote:
Originally Posted by DFW_M5
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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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
__________________
“The problem with the world is that the intelligent people are full of doubt, while the stupid people are full of confidence.”
(—Charles Bukowski)
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08-26-2015, 11:21 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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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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08-26-2015, 11:22 AM
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#10
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gone traveling
Join Date: Sep 2003
Location: DFW
Posts: 7,586
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Quote:
Originally Posted by samclem
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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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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08-26-2015, 12:00 PM
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#11
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Full time employment: Posting here.
Join Date: Nov 2009
Posts: 592
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Quote:
Originally Posted by samclem
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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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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