VWINX Posted today on The Independent Adviser for Vanguard Investors forum.
Summary
Some really good actively managed funds are being overshadowed in the current index fund craze.
Vanguard Wellesley Income is a nearly 50-year old fund with a stellar track record of delivering shareholders strong returns while limiting downside risk.
This fund may particularly appear to retirees given its 3% dividend yield and its history of limiting shareholder losses in down markets.
With so much attention focused on the billions and billions of dollars flowing into passively managed index ETFs, you might be surprised to find that actively managed mutual funds still exist! But they do, although the reasons that this segment of the market is shrinking are easy to understand.
For most funds, the cost of active management continues to be prohibitive. The average expense ratio for an actively management large cap mutual fund is around 1.25%. The average for an S&P 500 index fund? About 0.15%. That difference of over 100 basis points annually combined with the difficulty of trying to consistently pick outperformers over time has proven a steep hill to climb. Roughly 80% of active funds fail to match their benchmarks over time.
But not all active funds should be kicked to the curb. Some funds have great long-term track records, low expenses and smartly managed portfolios. At Vanguard, one of their oldest funds is also one of their best.
The Vanguard Wellesley Income Fund (MUTF:VWINX) is a nearly 50-year old fund that maintains a balance of around 60-65% bonds and 35-40% stocks. The mix of investment grade bonds and large-cap stocks makes it an ideal choice for retirees, those planning for retirement or new investors right out of the gate.
This is particularly intriguing for folks in or near retirement who may not have a great deal of time or resources in order to bounce back from a significant market decline.
The S&P 500's biggest drawdowns occurred during the tech bubble and the financial crisis. In each of those situations, the index retreated around 45-50% off of its near-term highs. The Wellesley Fund on the other hand has only twice experienced a drop of 15% over its five decade history and one of those times wasn't even during the tech bubble.
The other factor I look at is the fund's downside risk. How well does the fund protect investors when the market's winds start shifting? In Wellesley's case, pretty darn well.
In almost every long-term period, the fund has been able to deliver category-matching returns when the bulls take hold, while reducing market losses by around one-third when things start heading south. The one exception has been in the last year when a number of the biggest tech growth names have provided market leadership.
Digging into the fund, the fund's 0.22% expense ratio (0.15% if you qualify for the fund's Admiral shares) falls well below the Lipper category average of 0.81% and remains true to Vanguard's low-cost theme. Dividend seekers will enjoy the fund's 3.1% yield, a number that's boosted by its focus on corporate fixed income issues over government bonds (about 85% of the fund's bond holdings are corporate). The bond portion's 6.5 year duration is a little on the long side but provides a nice balance between yield and risk.
One important note to make is concerning the fund's long-term average annual returns. Wellesley boasts a nearly 10% annual return over the life of the fund, but investors should be cautioned against expecting those returns going forward. Those returns have been boosted by one of the longest fixed income bull markets in history and an equity market that continues to hit record highs and has not posted a calendar year loss since the financial crisis. With stocks looking relatively expensive and interest rates looking to continue heading higher, shareholders may want to temper expectations in the near-term. Investors looking for a heavier equity allocation might want to consider the Vanguard Wellington Fund (MUTF:VWELX).
Conclusion
Wellesley Income continues to be one of Vanguard's shining stars. The fund remains a popular option in workplace retirement plans so savers who don't have access to good index fund options (or even if you do) might consider this as a core 401(k) holding.
Even in the current era of index fund popularity, Vanguard Wellesley Income should be considered just as good a fund as you'll find in the marketplace today.
[seekingalpha.com]
The S&P 500 Has Never Had A Down Year After a Start Like 2017: LPL Projected 2017 Close 2760 + 22.1% @LewisBraham. It is ANALysis. Of a different kind than mine, but still same category :-D
As long as you don't marry it and have horrible children it is what determines portfolio returns in both up and down markets. The lowercase version NEVER worked for me.
Thing is "intelligent" people always like the lowercase version. Like Hussman. What is the point in being "right" if the rest of the world thinks you are "wrong"? Market is going to listen to the "wrong" people who think from their behind. He can take his PhD and...do whatever with it. The joke is if the market turns, it is not as if he is going to provide returns like a 2x inverse S&P 500 fund. Once you realize that you know the fund is to be sold. In my profession, this is known as "design" vs "implementation" issue. His design is good, his implementation is bad.
Every "hindsight" article in the media tells us investors buy and sell at the wrong time. This is because they don't know how to do "analysis", but they are also not doing "ANALysis" which is easier to do than a monkey throwing darts at internet stocks in the 90s and has bette probability of sucesss.
So it does not matter that article is nonsense. Do enough people believe it, and will they act on it. That will determine if what the article says will come true.
1-day market crashes are rare, and no one can predict them. For every other market crash, there is enough time to get out before your portfolio gets destroyed. There is also enough time to get back in without screwing up your chances of retirement. How I wish I would have hung out with the right people when I was young. I think I would have had enough money to just sit home and trade and I would already be retired.
I finally reached investment nirvana when I decided to manage my portfolio "actively" by "indexing" through ANALysis. We think too much.
Why Active Vs. Passive Is The Wrong Debate Finally! Someone talking some sense. It doesn't matter if one does not agree with every reason provided in the article for making this argument.
Unless you are invested with absolutely incompetent manager over the long run it is going to matter diddly. The quest to measure against index is futile. One needs to focus on absolute returns and permanent loss of capital. What I call ANALysis. This lets me navigate my retirement accounts even when I get locked out of repurchase when I am forced to sell on whipsaws in index funds. I just go into another "large cap" fund or a target retirement fund.
What I like is a "smooth" line going upward all the time and I'm okay if the slope of that line is below the index slope. I just need my slope to be smoother and I have been achieving it for the past 10+ years. I'm perfectly fine seeing a "flatline" in my portfolio before my models tell me to start moving "upward" again, and I don't try catching the index slope.
Why Active Vs. Passive Is The Wrong Debate
Alternative Strategies, Multiple Managers
Cash May Prove Better Portfolio Protector Than Bonds
M*: 25 Funds Investors Are Dumping I'm really surprised that one of my very long-term investments, Franklin Mutual Global Discovery (MDISX), made this list, with an eye-popping outflow of 16%.
It has a great long-term record (even though Michael Price is just a fond memory). Solid team managing it. Guess that isn't enough.
I'm a recent buyer in MDISX, but not a meaningful position. I used to own it long time back when I was with E*Trade and it was NTF. However, I couldn't stand E*Trade and with it I had to exit my MDISX position. Now I'm back, and let's hope people fleeing MDISX is a contrarian indicator.
I also own MALOX in one of my retirement accounts and VGHCX for a trade.
The S&P 500 Has Never Had A Down Year After a Start Like 2017: LPL Projected 2017 Close 2760 + 22.1% FYI: So far so good?
On May 25, Wall Street closed the
100th trading day of 20
17, with the S&P 500 having risen 7.9% over that period. That’s a strong start to a year—the fourth-best start of the past 20 years—but don’t worry if you didn’t miss the rally. According to data from LPL Financial, not only has the market never ended a year with a negative return after such a start, but such a beginning typically augurs well for gains through the rest of the year.
Since
1950, there have been 23 years, not including 20
17, where the S&P rose at least 7.5% over the first
100 trading days. In all those instances, the market ended higher on the year, with an average annual gain of 23.4%. Based on where the market ended 20
16, such an annual gain would mean the benchmark index SPX, +0.76% ends the year around 2,760.
Regards,
Ted
http://www.marketwatch.com/story/the-sp-500-has-never-had-a-down-year-after-a-start-like-2017-2017-05-31/print
VWINX That's correct, rebalancing = the whole drag. As it typically is, by design.
I thought this 10k growth interesting (but again 50-50 Fido, so not altogether appropriate), and again not real-time-rebalanced:
Start date fall 1981: V = 362, F = 523k
same 1991: V = 81k, F = 111k
same 2001: V = 29k, F = 33k
same 2011: V = 16k, F = 18k
last 3y: V = 12k, F = 12.5k
1y: V = 11k, F = 11k
ytd: V = 10, F = 11
So the decision is b/w the discipline of rebalancing (which is nicely automatic w Vanguard) or the discipline of letting profits run / leaving alone.
M*: 25 Funds Investors Are Dumping I'm really surprised that one of my very long-term investments, Franklin Mutual Global Discovery (MDISX), made this list, with an eye-popping outflow of 16%.
It has a great long-term record (even though Michael Price is just a fond memory). Solid team managing it. Guess that isn't enough.
AAII Investor Sentiment: Bullish Sentiment Declines…Again FYI: The dour mood of individual investors continued once again this week as the latest sentiment poll from AAII showed another sizable drop in bullish sentiment. In this week’s survey, bullish sentiment declined from 32.86% down to 26.92%. There’s not much to say here besides the fact that bullish sentiment has been below 50% for a record
126 straight weeks.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/bullish-sentiment-declines-again-2/
Bespoke: S&P 500 Winners Remain Winners, Losers Remain Losers
VWINX Regarding JoeD's inquiry on the question of VWINX during a rising rate environment, M* notes the following:
"Between June 2004 and May 2007, the Fed raised rates by 25 basis points on 17 separate occasions, hiking the overnight lending rate to 5.25% from 1.00%. During that three-year stretch, the fund's 9% annualized gain beat the category norm by nearly 2 percentage points."
Perfect, I think that's exactly the info. I was really searching for (also, thanks for summarizing my long-winded inquiry, Press). Time for me to do some cost-averaging into VWINX.
News Flash! The Bull Market Is Quite Rational There are, it seems to me, two arguments at work in this article.
1. Investors routinely ignore politics, unless and until they impact economics. That seems about right.
2. All is well in the market and the economy since profits are at record levels. That seems rather shakier. Three researchers from Research Affiliates, Rob Arnott's firm, released a paper today which argues "the ‘Trump bump’ reveals market expectations of continuing public policies prioritizing stability, inhibiting creative destruction, depressing yields and wage growth, and inflating a profits bubble. If instead the Administration delivers reforms that allow creative destruction, invigorate growth, and raise returns to capital and wages, then the lofty profits of corporate incumbents will be at risk."
Cheers,
David
M*: 25 Funds Investors Are Dumping
John Bogle Has A Warning For Index Fund Investors
Cash May Prove Better Portfolio Protector Than Bonds
VWINX Regarding JoeD's inquiry on the question of VWINX during a rising rate environment, M* notes the following:
"Between June 2004 and May 2007, the Fed raised rates by 25 basis points on 17 separate occasions, hiking the overnight lending rate to 5.25% from 1.00%. During that three-year stretch, the fund's 9% annualized gain beat the category norm by nearly 2 percentage points."
For the next several years, I would guess that the performance of VWINX would be driven more by the equity markets than the rising bond rates. Performance versus its peers would likely mirror its past.
At least my money is riding on that.
VWINX I thought the bond bull market is over and falling rates cannot buoy bond prices like they have for the past several years, over the next several years. I do own GLRBX which is more bonds than stocks like VWINX. One can make the argument VWINX is better than GLRBX, but I dunno how one can predict VWINX will continue to deliver superior returns in a falling stock market with rising interest rates.
I own VWELX, but I'm looking at tactical allocation and world allocation funds vs true blue balanced funds for my non-stock exposure. Past performance is not a guarantee of future performance. If we keep doing hindsight analysis then based on how far back we go we might come up with different conclusions. Over last
10 years I believe VWINX and VWELX have returned about the same but VWINX has been less volatile because it has less stocks and more bonds, and because interest rates have been generally falling. The below chart is food for thought.
