Originally Posted by RunningBum
So why does one need to assess the performance of the equity part of Wellington or Wellesley? Why not just assess the overall performance? Vanguard's site shows the benchmark they compare the fund against, or you could create your own benchmark.
Sorry to be slow to answer. I thought I answered the day after you posted but apparently forgot to push the "Submit" button after editing. Try again:
There's probably little need to worry about Wellington or Wellesley and no need to worry about blended funds where the equity portion is indexed.
Probably the worst case where "assess overall performance" doesn’t work is with target date funds. The reason is that their AA varies all over the map. A target date fund that is heavy on equities might look good if the manager was lucky and might look terrible if he was not. No real way to tell that by comparing to other target date funds.
In general, I call this the "Kool-Aid problem." When the red and the green are poured into the same glass, it is pretty hard to be sure where the resulting color and flavor came from.
Re creating a benchmark, it is do-able but getting suitable components and getting good total return numbers would be a pain and you still have the Kool-Aid problem. Good equity performance and a conservative bond portfolio might look exactly the same as lousy equity results and a bond portfolio stuffed with junk.
I have never made a blanket recommendation against blended funds, though. The good ones like Wellington and Wellesley are very suitable for investors who want their AAs to be on autopilot. What I have said is that I
will never buy a blended fund because I always want to be able to easily look in the box.
The same problem arises when looking at the overall performance of a brokerage account with both equities and fixed income. The performance numbers on the statements tell you nothing. I am on the investment committee of a nonprofit and recently maneuvered the FA into splitting our biggest account into two so we could see the equity performance and the bond performance separately. I'm already seeing signs that he is a little more conscious of how his performance compares to equity benchmarks like the ACWI. That's good. I really laughed (internally) at our last meeting when he justified a trade from one fund to another "because the fees are lower."