frequency of balancing in balanced funds

[DEC-1982]

Does anyone here know how often the Vanguard Balanced Index fund does its balancing between the Total Stock Index and Total Bond Index to keep it at its target 60/40 balance? Daily? If daily, that might explain its (relatively) higher expense ratio of 0.07% compared to the 0.04% and 0.05% of the stock and bond funds. I am referring tp Admiral funds here for cost comparisons.

Also, how often do Vanguard Wellington and Vanguard Wellesley re-balance between their stock and bond parts?

 

[MBAustin]

Have you read the prospectuses for the funds to see what they say? That's normally where the investment policies are spelled out. The actual details I would suspect are proprietary, though.

 

[pb4uski]

The question is a bit of a nit, but I suspect the answer one would get is something along the lines of continually as required.

 

[MRG]

No idea. In regard to the ER, it's only CPU cycles. Not like Vanguard's computers do anything else.

 

[VanWinkle]

Having read the prospectus, I agree it is likely proprietary as there is no definite time period listed for re-balance.

Temporary Investment Measures
The Fund may temporarily depart from its normal investment policies and strategies
when the advisor believes that doing so is in the Fund‘s best interest, so long as the
strategy or policy employed is consistent with the Fund‘s investment objective. For
instance, the Fund may invest beyond its normal limits in derivatives or exchangetraded
funds that are consistent with the Fund‘s objective when those instruments
are more favorably priced or provide needed liquidity, as might be the case when the
Fund receives large cash flows that it cannot prudently invest immediately.

 

[VanWinkle]

Does anyone here know how often the Vanguard Balanced Index fund does its balancing between the Total Stock Index and Total Bond Index to keep it at its target 60/40 balance? Daily? If daily, that might explain its (relatively) higher expense ratio of 0.07% compared to the 0.04% and 0.05% of the stock and bond funds. I am referring tp Admiral funds here for cost comparisons.

Also, how often do Vanguard Wellington and Vanguard Wellesley re-balance between their stock and bond parts?

Both of these funds have active management and can re-balance at the discretion of the management.

 

[JoeWras]

I tried reading the full prospectus. Ouch.

It sounds like typical cash flow (redemptions and purchases) are a big part of the equation. It is still not super clear to me, however.

 

[audreyh1]

I tried reading the full prospectus. Ouch.

It sounds like typical cash flow (redemptions and purchases) are a big part of the equation. It is still not super clear to me, however.

Exactly! There are opportunities every day as cash flows in and out of the fund. I always thought of them as continually rebalancing.

 

[OldShooter]

I tried reading the full prospectus. Ouch.

It sounds like typical cash flow (redemptions and purchases) are a big part of the equation. It is still not super clear to me, however.

That makes sense. When someone buys or sells the fund VG can buy or sell the underlying assets in a proportion that is different from target in order to move the fund's proportion towards its target.

But does it matter? The long term charts I have seen say that AAs between 60/40 and 40/60 don't produce dramatically different results. So a bit of a lag in the fund's rebalancing seems unlikely to matter. Certainly they have modeled it and know.

 

[DEC-1982]

I had read the prospectus earlier this year (or I should say I had scanned it) but I went through the 61 pages of the prospectus more thoroughly today. If the answer is there I missed it. Reading the document, at some point, my eyes glazed over. Maybe I need to read 10 pages at a time, over a period of hours or days.

When I do my annual re-balancing I know the ratio is sometimes a few percentage points off (like 63/37 from the starting 60/40 at the beginning of the previous year). I was just curious to understand how they do it, especially for the Index fund, that's all.

I did see they don't even hold all @3500 stocks, they do sampling for the 60% portion. But that's probably true for even the Total stock Market Fund. Same on the bond side; they use sampling.

And I did see that the manager can vary from the target limits when they think it's in the best interest of the fund.

 

[gwraigty]

I had read the prospectus earlier this year (or I should say I had scanned it) but I went through the 61 pages of the prospectus more thoroughly today. If the answer is there I missed it. Reading the document, at some point, my eyes glazed over. Maybe I need to read 10 pages at a time, over a period of hours or days.

Is there an online PDF available? You might be able to search the document quickly for the relevant info.

 

[LOL!]

Here is an old interview where Vanguard's John Ameriks reveals all ...

https://obliviousinvestor.com/interview-with-vanguards-john-ameriks-about-target-retirement-funds/

... that Vanguard is going to reveal.

During the panel discussion, you mentioned that the funds are rebalanced back to their target allocation daily using cash flows into or out of the fund, but that if cash flows were not sufficient to get the fund back to its target, further rebalancing would only occur if the fund’s allocation had strayed outside of a certain tolerance range.

 

[NW-Bound]

I think most balanced fund managers including those at Vanguard do opportunistic rebalancing as they see fit. If one follows a rigid formula, he misses out on the chance to take advantage of some rare market movements.

About Vanguard Balanced Index, I looked out of curiosity and saw that its annual portfolio turnover rate is 37%. That means out of $100, the manager trades $37 worth in a year.

 

[deserat]

....
I did see they don't even hold all @3500 stocks, they do sampling for the 60% portion. But that's probably true for even the Total stock Market Fund. Same on the bond side; they use sampling....

When I attended VG's last year's stockholder meeting, one of the board members used a variation of this as an answer to another question by an audience member who was wanted VG to drop certain stocks in their index funds due to social concerns. He said that the index is a fairly large sample that mimics to a certain probability (my words or interpretation) the behavior of the whole stock market. He did not go into specifics.

I was a bit surprised by that statement, however, can understand them not wanting to own the whole kit and caboodle. It sounded like they had some serious analytical and probability models crunching numbers with a bit of human input for these 'indexes.' So far, the results have correlated, so I'm not overly concerned about their methods.....yet.

 

[LOL!]

Vanguard has stockholders? They have a meeting? Huh? Oh, you mean shareholders meeting.

I suspect the turnover of 37% in Vanguard Balanced Index fund can be attributed to the 40% bond portion of the portfolio. The turnover of Vanguard Total Bond Market Index fund is listed as 55% in one place, but that seems low for a bond fund. If the bond portion turnover was applied to the Balanced Index fund, I can see where one could get up there.

 

[mountainsoft]

When I do my annual re-balancing I know the ratio is sometimes a few percentage points off (like 63/37 from the starting 60/40 at the beginning of the previous year). I was just curious to understand how they do it, especially for the Index fund, that's all.

I did see they don't even hold all @3500 stocks, they do sampling for the 60% portion. But that's probably true for even the Total stock Market Fund. Same on the bond side; they use sampling.

I have the VBIAX 60/40 index fund. I was curious how it compared to holding the same balance in individual VTSAX stock and VBTLX bond funds. So I entered the numbers into the backtest portfolio analyzer https://www.portfoliovisualizer.com/backtest-portfolio.

Since 2002 when the funds started, the returns have been virtually identical, which tells me they're using the same stocks and bonds for VBIAX as they do for VTSAX and VBTLX. Any differences are small enough not to matter.

The nice thing about VBIAX is that it balances automatically so I won't need to rebalance annually when we start taking distributions. Simple is better.

 

[deserat]

Vanguard has stockholders? They have a meeting? Huh? Oh, you mean shareholders meeting.

I suspect the turnover of 37% in Vanguard Balanced Index fund can be attributed to the 40% bond portion of the portfolio. The turnover of Vanguard Total Bond Market Index fund is listed as 55% in one place, but that seems low for a bond fund. If the bond portion turnover was applied to the Balanced Index fund, I can see where one could get up there.

Sorry - shareholders - I guess I'm not precise enough for you.

In any case, I got the invite, drove up to Scottsdale to see what it was all about. Fully half the meeting was taken up by petitions to VG to dump certain stocks in their index funds for political or social reasons. I found that interesting as the point of indexing was to just index and not look at the stock 'fundamentals.' That's when the 'sampling' information came out.

 

[DEC-1982]

Here is an old interview where Vanguard's John Ameriks reveals all ...

https://obliviousinvestor.com/interview-with-vanguards-john-ameriks-about-target-retirement-funds/

... that Vanguard is going to reveal.

Thanks, that's what I was looking for.