Wellington/Wellesley vs. Random Walk Theory

[Toddtheformeraccountant]

So I philosophically am wedded to the passive ETF index method...I'm 55% equities, 45% bonds, the 55% is split between S&P and Russel 500 ETF's and the bonds are basically in total bond market ETF's. Born of a strong belief in the "random walk" theory and asset allocation to find the right risk/return profile considering risk tolerance/risk capacity.

But I don't want to be doctrinaire..realize my philosophy isn't shared universally...so maybe I'm missing out.

Would be interested in people's thoughts on how investing in either Wellington or Wellesley funds are consistent with or at least not completely inconsistent with the random walk theory...because they do select stocks, while still having a relatively low expense drag.

 

[coveredbridge]

Nor sure what "random walk" theory is , but Wellington/Wellesley is not going to give you the same exposure to stocks/bonds as the index ETF's you listed. W/W focuses on large cap primarily value stocks so you will not get exposure to Small Caps as in your Russell 2k ( I assume you meant) ETF. Likewise W/W also invests in investment grade bonds so you would not get exposure to high-yield as I assume you would in a total bond market ETF. Finally, W/W are actively managed funds so perfromance could be expected to diverge from comparable index ETFs. Nevertheless I have a substantial portion of my retirement funds in W/W. I like the idea that the funds are professionally managed even though most studies indicate that active management offers no incremental return over passive. I also like that they manage to a particular stock/bond allocation so no rebalancing needed.

 

[unclemick]

Nor sure what "random walk" theory is , but Wellington/Wellesley is not going to give you the same exposure to stocks/bonds as the index ETF's you listed. W/W focuses on large cap primarily value stocks so you will not get exposure to Small Caps as in your Russell 2k ( I assume you meant) ETF. Likewise W/W also invests in investment grade bonds so you would not get exposure to high-yield as I assume you would in a total bond market ETF. Finally, W/W are actively managed funds so perfromance could be expected to diverge from comparable index ETFs. Nevertheless I have a substantial portion of my retirement funds in W/W. I like the idea that the funds are professionally managed even though most studies indicate that active management offers no incremental return over passive. I also like that they manage to a particular stock/bond allocation so no rebalancing needed.

Today (since about 2006) I'm pretty much Target Retirement 2015 cause I'm in my 70's. ER'd since 1993 with about a year of temp work early on.

Early days I leaned more to value read dividend stocks and interest on bonds ran higher back then also. Hence my pssst Wellesley. Although over all 60/40 counting my other stocks. Thinking was that dividends and bond interest provided an anchor in a market storm - ie helping me to NOT re balance at an inopportune time. I also bought the yearly dividend achievers Handbook back then. As years passed my 401k rollover (aka index fund) became the 'big dog on the porch.'

heh heh heh - still have nostalgia and a fondness for value/dividend stocks but lean on balanced index now after 26+ years of ER.

P.S. Twist my arm and I can make a case for either approach - I like them both.

 

[Koolau]

Wellington/Wellesley are the only two non-index funds I own (thanks, unclemick.) YMMV

 

[OldShooter]

Do they break out the total return of their equity tranches so you could know? AFIK most of the random walk discussion revolves around equities.

The problem I have with any blended fund is that once the green Kool-Aid and the red Kool-Aid are poured into one glass it is impossible to know which one is responsible for the color.

 

[REWahoo]

The problem I have with any blended fund is that once the green Kool-Aid and the red Kool-Aid are poured into one glass it is impossible to know which one is responsible for the color.

Those of us who own Wellington and Wellesley aren't concerned about color, only about taste. So far the flavor of those funds has been very good and that's why we buy and hold them.

 

[OldShooter]

Those of us who own Wellington and Wellesley aren't concerned about color, only about taste. So far the flavor of those funds has been very good and that's why we buy and hold them.

Oh, blended funds including target date funds are great choices for many investors. But the fact that they are blended makes it very difficult to answer questions like the OP's.

 

[yakers]

Wellington/Wellesley are the only two non-index funds I own (thanks, unclemick.) YMMV

Have been thinking about this with Wellsley in tax favored and Wellington in Taxable and a few $ in MMF/stable value/cash.

They have been good funds and I am looking for someone more knowledgeble than me to manage the bond side of the portfolio.

So does that sound reasonable to the financially literate who populate this forum?

 

[REWahoo]

So does that sound reasonable to the financially literate who populate this forum?

While I cannot lay claim to the "financially literate" qualifier in your question, I will say your proposed investment mix using W&W is what I've been doing for the past 15 years. I've been happy with how the funds have performed and plan to stick with them.

 

[ejman]

Have been thinking about this with Wellsley in tax favored and Wellington in Taxable and a few $ in MMF/stable value/cash.

They have been good funds and I am looking for someone more knowledgeble than me to manage the bond side of the portfolio.

So does that sound reasonable to the financially literate who populate this forum?

Although I have been living off my portfolio since ER at the end of 2002 the "financially literate" portion is quite a stretch - nonetheless, I have had between 35% to 45% of my liquid net worth in Wellesley/Wellington over the years and quite happy with that.



Whenever I've compared those two to index funds with similar stock/bond ratios I've found the performance just as good if not better so I've stuck with them. Do keep in mind however that both funds generate quite a bit in dividends and capital gains so taxes will be higher than in equivalent index funds. I use the dividends /capital gains for living expenses so that is fine with me but your situation may be different.