An odd choice for a VP: Wellesley

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Kevin K.
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An odd choice for a VP: Wellesley

Post by Kevin K. » Tue Sep 15, 2020 10:01 am

OK here's a weird idea for a VP: Vanguard's venerable Wellesley Income Fund, which celebrated its 50th year of stellar returns this past July.

What prompted the thought was talking with a very knowledgeable investor friend who's long had 25% of his nest egg in W with the rest broadly-diversified in equities, Treasuries and gold. Other than Wellesley he holds only index funds, but feels that a decent slice of arguably the best actively-managed fund in history adds to his diversification - while also providing something his wife could just dump everything else into if he kicks the bucket first.

Of course the fund is narrowly concentrated in handpicked IT corporates and dividend stocks and with U.S. valuations being so rich a fund that holds no international seems somewhat suspect (but of course the PP doesn't hold any either). Probably not a choice that would appeal to most who frequent these forums but I've wondered if a modest allocation to W in my IRA might make sense.
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Re: An odd choice for a VP: Wellesley

Post by modeljc » Tue Sep 15, 2020 10:36 am

Kevin K. wrote:
Tue Sep 15, 2020 10:01 am
OK here's a weird idea for a VP: Vanguard's venerable Wellesley Income Fund, which celebrated its 50th year of stellar returns this past July.

What prompted the thought was talking with a very knowledgeable investor friend who's long had 25% of his nest egg in W with the rest broadly-diversified in equities, Treasuries and gold. Other than Wellesley he holds only index funds, but feels that a decent slice of arguably the best actively-managed fund in history adds to his diversification - while also providing something his wife could just dump everything else into if he kicks the bucket first.

Of course the fund is narrowly concentrated in handpicked IT corporates and dividend stocks and with U.S. valuations being so rich a fund that holds no international seems somewhat suspect (but of course the PP doesn't hold any either). Probably not a choice that would appeal to most who frequent these forums but I've wondered if a modest allocation to W in my IRA might make sense.
I owned W in the past but sold my positon in April 2020. I did not like that the US govt. is providing a bid for corporate investment grade debt. The funds hold 60% or so in bonds. W did well with falling bonds yields and the wind at their back since 1980. It is well managed also.
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Re: An odd choice for a VP: Wellesley

Post by Tyler » Tue Sep 15, 2020 10:57 am

Kevin K. wrote:
Tue Sep 15, 2020 10:01 am
Of course the fund is narrowly concentrated in handpicked IT corporates and dividend stocks and with U.S. valuations being so rich a fund that holds no international seems somewhat suspect (but of course the PP doesn't hold any either).
If you like Wellesley and also want international exposure, they have a new Global Wellesley version called VGWIX. The ER is a bit higher, but if it's run like its famous sibling I imagine it's a good fund.

While I prefer to manage my own portfolio of ETFs, I've always liked Wellesley and have recommended it to friends looking for a safe, simple way to invest. And Wellesley with a side of gold looks and acts a lot like the Golden Butterfly (with a bit more credit risk).
Mechanical engineer, history buff, treasure manager... totally not Ben Gates
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Tue Sep 15, 2020 11:51 am

Thanks very much for your thoughts!

I don't blame folks who dislike active management but Wellington Group certainly has a deep bench and it's difficult to argue with the performance over many decades of either of the "W" funds (Wellington or Wellesley).

I could totally see recommending some combination of the international an domestic Wellesleys to a conservative investor who just wants a set-it-and-forget-it portfolio - albeit preferably with lots of room in tax-deferred accounts.

I think you mentioned the Wellesley with a slice of gold idea before Tyler but I was pretty blown away when I just added 20% IAU to Wellesley and ran some backtests. Guess I should head over to the Bogleheads forum and start a thread called "How To Fix Wellesley." (just kidding - I've learned my lesson about mentioning the four-letter word G**d over there). ;)
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Re: An odd choice for a VP: Wellesley

Post by modeljc » Tue Sep 15, 2020 5:02 pm

Kevin K. wrote:
Tue Sep 15, 2020 11:51 am
Thanks very much for your thoughts!

I don't blame folks who dislike active management but Wellington Group certainly has a deep bench and it's difficult to argue with the performance over many decades of either of the "W" funds (Wellington or Wellesley).

I could totally see recommending some combination of the international an domestic Wellesleys to a conservative investor who just wants a set-it-and-forget-it portfolio - albeit preferably with lots of room in tax-deferred accounts.

I think you mentioned the Wellesley with a slice of gold idea before Tyler but I was pretty blown away when I just added 20% IAU to Wellesley and ran some backtests. Guess I should head over to the Bogleheads forum and start a thread called "How To Fix Wellesley." (just kidding - I've learned my lesson about mentioning the four-letter word G**d over there). ;)
Pls. share the backtests.
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Tue Sep 15, 2020 5:34 pm

OK here's the best I can come up with. The constraint is that GLD, the first U.S. gold ETF, has only been in existence since 2004. But this gives you a good sense of what Tyler was talking about.

The general principle that he talks about in his excellent article on gold on the Portfolio Charts site of a modest allocation to gold smoothing overall performance clearly applies to even a quite concentrated portfolio like Wellesley:

https://www.portfoliovisualizer.com/bac ... tion6_3=75
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Re: An odd choice for a VP: Wellesley

Post by I Shrugged » Tue Sep 15, 2020 6:04 pm

Wellesley has been rock solid for the ~30 years my wife has used it for her IRA money. I'm very impressed with it. I wouldn't hesitate to recommend it to anyone looking for steady, conservative growth.
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Re: An odd choice for a VP: Wellesley

Post by D1984 » Tue Sep 15, 2020 6:26 pm

Kevin K. wrote:
Tue Sep 15, 2020 5:34 pm
OK here's the best I can come up with. The constraint is that GLD, the first U.S. gold ETF, has only been in existence since 2004. But this gives you a good sense of what Tyler was talking about.

The general principle that he talks about in his excellent article on gold on the Portfolio Charts site of a modest allocation to gold smoothing overall performance clearly applies to even a quite concentrated portfolio like Wellesley:

https://www.portfoliovisualizer.com/bac ... tion6_3=75
https://www.portfoliovisualizer.com/bac ... ation7_1=2

Here it is back to 1987; I had to use VUSTX in place of TLT, a blend of FIGTX/CASHX to replace VFISX, ^GOLD in place of IAU or GLD, VFINX in lieu of a TSM fund since no TSM fund goes back that far, and an actively managed SCV fund (PENNX) since no Vanguard or DFA SCV index funds go back that far....but it does show how adding gold can smooth things out.
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Tue Sep 15, 2020 7:00 pm

Thanks very much for doing that D1984.

All three are outstanding portfolios. The 80% Wellesley 20% Gold iteration has the best risk-adjusted returns of any of these options in both backtests. A winner it would appear for anyone wanting to keep things simple while applying a bit of PP wisdom to what is after all the epitome of a mainstream retirement income fund.
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Re: An odd choice for a VP: Wellesley

Post by l82start » Tue Sep 15, 2020 7:06 pm

Wellesley + gold was the choice i picked for my ex wife when she took over managing her own funds. i doubt she ever bought gold (or looked at the account ever again) but it seemed like a good call for a non investor, and if you count jewelry its probably reasonably balanced even if she just lets it sit...
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Re: An odd choice for a VP: Wellesley

Post by PP67 » Wed Sep 16, 2020 10:12 am

I just celebrated my 69th birthday have long thought about how I could make our investments easier for my wife after I'm gone and had considered that perhaps moving everything to a Wellesley + Gold allocation would be the simplest for her to manage with Vanguard doing most of the "managing" within the Wellesley fund.

Taylor, I know I have asked about this before and no doubt have no idea of how hard and complicated it might be but since there is a lot of historical data for the Wellesley fund (and the Wellington fund), could it be possible to add these funds to your portfolio charts options and see if how they would look? I suspect a lot of fans would be very interested. I would certainly be Venti Venti grateful!
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Re: An odd choice for a VP: Wellesley

Post by Tyler » Wed Sep 16, 2020 11:59 am

PP67 wrote:
Wed Sep 16, 2020 10:12 am
Taylor, I know I have asked about this before and no doubt have no idea of how hard and complicated it might be but since there is a lot of historical data for the Wellesley fund (and the Wellington fund), could it be possible to add these funds to your portfolio charts options and see if how they would look? I suspect a lot of fans would be very interested. I would certainly be Venti Venti grateful!
Adding mutual funds to the site is outside of my goals for now, but I'm happy to hook you guys up with a few custom charts. 8) All of these use VWIAX data from the Simba spreadsheet. I haven't done some of my normal things like verifying returns and correcting ERs, but Simba is pretty trustworthy and it should be close enough to get the idea.

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Like I said, that's pretty similar to the GB. Long story short, the income focus of Wellesley shifts the stocks towards value and the bonds towards higher-yielding options (using greater credit risk rather than longer maturities). The end result is in the same structural ballpark as the GB, so the numbers aren't too surprising.
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