A case for Active instead of Index

[NW-Bound]

While I think Wellesley and Wellington are fine MFs, and something that I would recommend to my friends, relatives, and even my wife upon my demise, I am still an active investor, and hold just a bit of these MFs. I own some, so that they show up on my Quicken screen, so that I will remember to follow them.

In the past, I did look up the stock holdings of these MFs out of curiosity, but not their bond portion. Regarding the duration of their bonds, Ha has provided an explanation for the managers' choice, which may be a reasonable prognostication.

One thing that I have observed is that after a decade of outperformance by these MFs, people are now flocking to them. Will their performance continue, or rather, will the past advantageous conditions continue? Just look at the recent performance, and see for yourself. One should look at these funds for stability, and not because they beat the market in recent years.

People tend to have very high expectation that past outperformance will continue, despite the caveat that all funds put in their prospectus: "Past Performance is No Guarantee of Future Results".

 

[dtbach]

All of this makes me more glad that I own a ton of both Wellesley and Wellington!

 

[ERD50]

... Why do you have to include that caveat? I think the problem will still be here, waiting for you.

? Because I've got a lot on my plate this week, and I just thought someone might get this figured out and post before I did. Why is that funny?

I'm confused by some of the comments I got. Was I being a 'critic'? I re-read my post to try to figure out if I worded it poorly, because I sure did not intend to be critical. I still didn't see it, so I'm confused.

What I thought I was reading is that there was some question if the numbers presented (Wellesley vs SPY vs 60/40, 40/60, re-bal/no-re-bal) were accurate, or if something didn't match. So I suggested that it might be due to an inflation adjustment error, or maybe getting data from different sites that may be treating something like div re-invest differently (which can make a big delta over 20 years). That wasn't meant to be critical, it was meant to help us validate the numbers.

I will still be tied up most of this week, but since there was no update yet, I took a little time to look into it (the 1980-2000 time frame) last night. I was going to ignore inflation, as it would apply equally to all. I was able to verify for myself that re-bal really did create a drag in that time frame.

What I have not found (in the limited time I had) was a single source for Wellesley(VWINX), SPY and a bond index returns from 1/1/1980 to 1/1/2000. I did see Yahoo finance has annual performance numbers for VWINX

VWINX Performance Overview | Vanguard Wellesley Income Fund Stock - Yahoo! Finance

But if I do a cumulative calc on those, does that reflect re-invest of divs? I'm thinking it does, 99.9% sure. If so, then I need to check if similar market index and bond index performance goes back that far on yahoo, so my comps are apples-apples. I just looked up VTSMX, only goes back to 1992.

I may not be able to get back to this for several days, got a furnace repair and other things going on.

-ERD50

 

[NW-Bound]

? Because I've got a lot on my plate this week, and I just thought someone might get this figured out and post before I did. Why is that funny?
...
I may not be able to get back to this for several days, got a furnace repair and other things going on.

-ERD50

It's my nature, just wanting to poke fun at our tendency to lay out the methodology, then wait for someone else to do the real work. Like Tom Sawyer? Nothing personal, as it was never intended. Just teasing... I also read samclem's post as self-mocking.

I might look to do this myself (meaning using another source of data such as Morningstar other than Web based software like FIRECalc), but need to back off this a bit. Heck, some financial writers surfing this forum may take upon themselves to answer this "balancing portfolio performance" already. You know how people are always hungry for ideas for an article, while ER's like us are, well, too carefree to bother.

Cheers

PS. Regarding Morningstar, I think its data is impeccable regarding MF's performance. In the past, I was able to match Morningstar's numbers to Vanguard's published numbers to all significant digits. The problem I have, same as what you found, is what to use to represent the bond portion for the balanced portfolio.

 

[NW-Bound]

Now, as I owe it to the OP who started this thread with American Funds, then we hijacked it over to Wellesley and Wellington, I need to make this post.

I glanced through this, https://www.americanfunds.com/pdf/mf...capidea913.pdf, and smirked at their claim of low expenses boosting returns. What about all the loads that other posters talked about?

Still, I thought I would just pick one of their funds to see how it did in the past. I saw this American Funds New Perspective that looked interesting. So, off to Morningstar I went.

What are all these classes of shares? Good grief! Apparently, it is one of those old-style funds that I bought once and hated. One class had a front-load, another a back-end load, and some with no load but ongoing higher annual fees... Is this another one of those?

Still, I have gone this far, so might as well continue. OK, so how about this symbol ANWPX? I do not know what load I would have to pay to get it, but how did it do?

Morningstar showed performance going back to 1973, so it has been around a while. Morningstar rated it a 4-star out of 5. It's a global equity large-cap fund, holding virtually no bonds, 6% cash right now, 44% US equity, 48% international, and 2% other.

Hmm... What's the performance?

In the period of 1980-2003, it matched the S&P nearly perfectly, all the way up to the peak in 2000, then also matching the through in 2003. Since 2003, it departed from the S&P, and has been leading the latter. It has higher volatility than Wellington, which means that if you buy in at its peaks, you may not like the subsequent result.

FWIW, a $10K invested in VFINX (S&P), Wellington, and ANWPX in Jan 1, 1980 would be worth $372K, $409K, and $537K respectively on 9/30/2013.

Buy, buy, buy? I do not know about the sales charge, nor whether the past performance will continue. But I do see how they can be boastful of their past performance. As usual, we have to chose our own poison, then drink it.

PS. Another note: ANWPX (and S&P) led Wellington throughout the decades of 1980-2000, but Wellington exactly caught up with them when the former two cratered in 2003. Then, ANWPX started leading again.