Wellington Fund Plays Catch-Up

[nromsted]

If you are a Wellington Fund (VWELX/VWENX) shareholder, you were probably following the portfolio changes about a year ago.  There were some interesting discussion of the new manager's direction on the M* forum at the time (but I can't locate them now).

Basically, the new equity manager Pozen decided to go the MSFT, AAPL, GOOG, FB route at the expense of a good part of it's value-focused portfolio, which shrunk from about 180 to now 60 holdings.

I suppose this was done to goose the returns of the fund in a decidedly growth-friendly market.  And to encourage new investors to put their money into this fund.  Even at 65/35, it is still way behind some of its competitors in the 60/40 allocation fund category.  After just one year, how is this new strategy working out?

Outflows seem to be pretty significant.  Turnover and capital gain distributions are larger.  Performance appears to be lagging.

[chang]

HERE is a 1y chart of the most common, well-regarded 60/40-ish balanced funds (as far I could recall off-hand). You are right that VWELX is lagging. Not by much, though. Only two funds are lagging the "Moderate Allocation" Category (and just barely).

[nromsted]

Thanks for the chart. I don't intend to be selling anytime soon. I've been a shareholder in VWENX a long time, along with FBALX, and there are a lot of potential capital gains to be dealt with.  I often compare the two since they have different management styles.

Perhaps after just one year, it's too early to grade Pozen's style.  Quoting from the Nov 2020 Annual Report:

"Over the intermediate term, our outlook for equity markets remains balanced. The uncertainty surrounding the 2020 presidential election is largely behind us—and, with multiple vaccine trials releasing positive data, we can begin to conceive of a post-COVID economy. However, we appreciate the logistical challenges of vaccine production and distribution, and we recognize the economic uncertainty that still lies ahead.

At the portfolio level, we are enthusiastic about the prospects for many individual businesses. Large-cap financials Charles Schwab and JPMorgan Chase are showing strong underlying growth despite the challenging rate environment. Across sectors, businesses such as McDonald’s, HCA Healthcare, Facebook, Danaher, Blackstone Group, and Home Depot all have navigated the difficult conditions far better than expected.

Large pharmaceutical company Pfizer has been one of the leaders in developing a COVID-19 vaccine. Technology companies like Alphabet and Microsoft continue to achieve success across a range of businesses, product, and shareholders.

Over the course of the year, we initiated new positions in Facebook, Procter & Gamble, and Becton Dickinson. We believe Facebook has displayed excellent business resilience and has benefited from the accelerating shift to digital. The company is investing to extend their competitive advantage and still has a long runway for growth.

Procter & Gamble has an excellent management team, with solid market-share dynamics across key products that have continued to execute well. Nine out of ten of their product categories have grown organically despite the pandemic and its economic effects.

Becton Dickinson is a medical supply company that makes a wide range of everyday products that are essential to the delivery of health care. The company has a stable demand profile, with a dominant market share across most categories.

While the portfolio remains overweight in financials, we significantly reduced our positioning in the sector during the period. We did this by eliminating positions in several companies for which we had decreased confidence in their ability to create value at an attractive rate over time. The portfolio remains underweight in information technology, although we added to the sector during the year by buying competitively advantaged, growing businesses with strong management teams.

We remain committed to our investment philosophy and process to construct a portfolio of resilient businesses at reasonable valuations run by management teams that are likely to make value-enhancing decisions. Our goal is for the portfolio to deliver a superior rate of economic growth (earnings plus dividends) over the long term and downside protection during difficult economic and market environments."

[yogibearbull]

Although Pozen had some overlap [3/28/19-6/30/20] with Bousa, Pozen's time is really from 7/1/20- . Big techs also lagged the market a bit in 2020/Q4. It is still too early to assess the impact. IMO, changes have been for the better. LINK 7/1/20-

What is surprising is how well the boring 60-40 Star/VGSTX has done.

Another point that I have made elsewhere is that F-Balanced/FBALX and F-Puritan/FPURX are showing up now as aggressive-allocation [not moderate-allocation] with the effective-equity measurement that I use. There is nothing wrong with that but I prefer that funds stay in their category [not as stated, but as measured]. As I have plenty of direct equity exposure, I don't want want my moderate-allocation to start acting like aggressive-allocation.

[nromsted]

Thanks yogi. I've come to be OK with FBALX's allocation drift, and I note that it is disclosed up-front. And in fact, today it might be a bit more aggressive (more equity heavy) than VWENX. But VWENX changes with the market conditions as well. I would also note that FBALX's bond portfolio has been more active (and aggressive) than VWENX, and successfully so.

But this is what you get with active management. Hopefully, active management that is intelligent and timely.

Since I've owned both for over 17 years, they've each had better years and worse years. But each has managed to beat the category and the index. That's an accomplishment.

[steadyeddy]

Jan 24, 2021 14:48:11 GMT yogibearbull said:

Although Pozen had some overlap [3/28/19-6/30/20] with Bousa, Pozen's time is really from 7/1/20- . Big techs also lagged the market a bit in 2020/Q4. It is still too early to assess the impact. IMO, changes have been for the better. LINK 7/1/20-

What is surprising is how well the boring 60-40 Star/VGSTX has done.

Another point that I have made elsewhere is that F-Balanced/FBALX and F-Puritan/FPURX are showing up now as aggressive-allocation [not moderate-allocation] with the effective-equity measurement that I use. There is nothing wrong with that but I prefer that funds stay in their category [not as stated, but as measured]. As I have plenty of direct equity exposure, I don't want want my moderate-allocation to start acting like aggressive-allocation.

YBB - I highlighted the red text. Sorry if I missed the definition of "effective equity measurement," can you please briefly describe?

Thanks.

[yogibearbull]

Jan 28, 2021 21:32:04 GMT steadyeddy said:

Jan 24, 2021 14:48:11 GMT yogibearbull said:

Although Pozen had some overlap [3/28/19-6/30/20] with Bousa, Pozen's time is really from 7/1/20- . Big techs also lagged the market a bit in 2020/Q4. It is still too early to assess the impact. IMO, changes have been for the better. LINK 7/1/20-

What is surprising is how well the boring 60-40 Star/VGSTX has done.

Another point that I have made elsewhere is that F-Balanced/FBALX and F-Puritan/FPURX are showing up now as aggressive-allocation [not moderate-allocation] with the effective-equity measurement that I use. There is nothing wrong with that but I prefer that funds stay in their category [not as stated, but as measured]. As I have plenty of direct equity exposure, I don't want want my moderate-allocation to start acting like aggressive-allocation.

YBB - I highlighted the red text. Sorry if I missed the definition of "effective equity measurement," can you please briefly describe?

Thanks.

I define effective-equity as Relative_SD. It is dimensionless and is related to beta and correlation coefficient r as,

Relative_SD = beta/r

It depends on the benchmark used and I use SP500. I also use PV month-to-month run data that is up to date as of the most recent full month. It can be determined over various timeframes [1, 3, 5, yrs] but its value is quite stable and I use either 3 or 5 years.

Unfortunately, the PV [or M*] SD data are based on monthly returns. It would be be better to use SD based on weekly returns but I don't have a free source for that. One can also create a private database for this but I haven't done that. It is also not a good idea to mix SD from different sources, so all SD data should be from a single source [PV or M* or another].

[steadyeddy]

Jan 28, 2021 22:05:51 GMT yogibearbull said:

Jan 28, 2021 21:32:04 GMT steadyeddy said:

YBB - I highlighted the red text. Sorry if I missed the definition of "effective equity measurement," can you please briefly describe?

Thanks.

I define effective-equity as Relative_SD. It is dimensionless and is related to beta and correlation coefficient r as,

Relative_SD = beta/r

It depends on the benchmark used and I use SP500. I also use PV month-to-month run data that is up to date as of the most recent full month. It can be determined over various timeframes [1, 3, 5, yrs] but its value is quite stable and I use either 3 or 5 years.

Unfortunately, the PV [or M*] SD data are based on monthly returns. It would be be better to use SD based on weekly returns but I don't have a free source for that. One can also create a private database for this but I haven't done that. It is also not a good idea to mix SD from different sources, so all SD data should be from a single source [PV or M* or another].

Thanks YBB. Followups: market beta is that of Wellington, and correlation is between Wellington & SPY ? 

[yogibearbull]

steadyeddy , yes, beta and correlation of the fund are with respect to the same benchmark [SP500]. That relation describes the interrelationship, but it is not necessary to use it for calculation as PV provides the needed SD data directly, see LINK. From this 3-yr month-to-month run, effective-equities for 3 nominally moderate-allocation funds are as follows:

               Effective-Equity
VWELX         63.4%
FBALX          76.2%
DODBX         85.6%

So, FBALX and DODBX are positioned more like aggressive-allocation.

[steadyeddy]

Jan 28, 2021 23:36:35 GMT yogibearbull said:

steadyeddy , yes, beta and correlation of the fund are with respect to the same benchmark [SP500]. That relation describes the interrelationship, but it is not necessary to use it for calculation as PV provides the needed SD data directly, see LINK. From this 3-yr month-to-month run, effective-equities for 3 nominally moderate-allocation funds are as follows:

               Effective-Equity
VWELX         63.4%
FBALX          76.2%
DODBX         85.6%

So, FBALX and DODBX are positioned more like aggressive-allocation.

Thank you, YBB !!

[Majick]

Hi YBB,
How to post any Backtest portfolio analysis short "Link" from PV ?

only if you are paid PV subscriber it's possible ?
what's technical trick if any? ...as I'm not PV subscriber.
Thanks for your help.

[yogibearbull]

May 5, 2021 21:40:07 GMT Majick said:

Hi YBB,
How to post any Backtest portfolio analysis short "Link" from PV ?

only if you are paid PV subscriber it's possible ?
what's technical trick if any? ...as I'm not PV subscriber.
Thanks for your help.

After a PV run, scroll down to 1/3rd of the webpage just where the PV results begun, and click on "Link". The PV page refreshes with a real long URL. Copy the URL and use ProBoards' Link-tool [9th from the right on post menu bar] to post it. 

[jongaltiii]

This is such a great discussion. I’m in FBALX and FMSDX and I’m bullish on the tech stocks (added to Wellington) but “out of favor at this brief moment” but I’m also cognizant of what AA funds are for in my portfolio. Enjoy reading your viewpoints.

[retiredat48]

Had planned to start a thread on Wellington, but glad to see a thread already exists.  I also note not much posting activity for what was once a "super-thread" on M*.

Also disclosure:  Even though I have owned Wellington fund since 1953, for decades I have not been a fan of balanced funds...for various reasons.  And for the first time, sold some of my Wellington Fund over a year ago.

I just got notice of Wellington's annual report and thought I should peruse it.  I was quite surprised at the overall poor performance.  I'm not here to pick a fight with anyone (and I know some have big holdings in balanced funds), but here's some observations from the annual report ending 11/30/2021 (maybe I read it incorrectly):

--The stock side lagged its benchmark, the S&P500.  They explain why.

--The bond side returned negative -1.15%, slightly better than the benchmark.

--Net investment income has declined, per share, from yr 2019: $1.098, to 2020: $.966, to 2021 $.811.

--Net assets had outflows continuing, going from $18.4 billion in 2017 to $15.4 billion, 2021.

--income to assets, declining:  2019: 2.70%;  2020: 2.28%;  20212: 1.70%

----------------------------------------------------------------

These are significant changes, IMO.  Also, they are in line with outlooks by those less favoring balanced funds (ie better to split and invest in separate stock and bond funds). 

For instance, I posted of my selling out of all my standard issue, vanilla type bond funds starting two years ago, money now in very short term bond funds to MM Funds,  and now realizing this was a good move.  Total returns on such standard bond funds getting negative, with rates rising, and surely a net real return loss due to inflation and loss of purchasing power.

Also, we keep having these posts about PIMCO's leveraged fixed income CEF, PDI et al, and how annual income is sliding some, and NAV/price sliding a little, yet this is happening throughout the fixed income complex.

Not suggesting now what anyone is to do.  Rather, do others want to open/continue a dialogue here re Wellington and outlook going forward?  

R48

[Mustang]

Jan 24, 2021 3:05:18 GMT nromsted said:

If you are a Wellington Fund (VWELX/VWENX) shareholder, you were probably following the portfolio changes about a year ago.  There were some interesting discussion of the new manager's direction on the M* forum at the time (but I can't locate them now).

Basically, the new equity manager Pozen decided to go the MSFT, AAPL, GOOG, FB route at the expense of a good part of it's value-focused portfolio, which shrunk from about 180 to now 60 holdings.

I suppose this was done to goose the returns of the fund in a decidedly growth-friendly market.  And to encourage new investors to put their money into this fund.  Even at 65/35, it is still way behind some of its competitors in the 60/40 allocation fund category.  After just one year, how is this new strategy working out?

Outflows seem to be pretty significant.  Turnover and capital gain distributions are larger.  Performance appears to be lagging.

Are you being sarcastic?  Its hard to tell with the printed word.

A year is a short time frame but after a year the changes appear to be working.  I own two moderate-allocation funds (ABALX and VWENX) and it is natural to compare them.  For a short time Wellington was lagging behind AF Balanced but about the time its style box changed from value to blend it caught up.  As Chang's chart shows it out performed the other funds listed with an ending balance of $11,505 with FBALX second at $11,182.  When I look at the performance of my two funds Wellington has higher returns in all categories except YTD. 

When looking at performance over the last 12 months Morningstar is reporting that  Wellington's return is 13.7% and that it is beating its category by 6 points.  I don't believe I've seen that high of a margin before.  AF Balanced's return is 10.3% and its beating its category by 2.7 points.  Even if you look all the way out to 15-year performance its 2 points above it category.  So, I'm not really seeing a lot of under performance.

[acksurf]

Jan 30, 2022 1:08:02 GMT retiredat48 said:

Had planned to start a thread on Wellington, but glad to see a thread already exists.  I also note not much posting activity for what was once a "super-thread" on M*.

Also disclosure:  Even though I have owned Wellington fund since 1953, for decades I have not been a fan of balanced funds...for various reasons.  And for the first time, sold some of my Wellington Fund over a year ago.

I just got notice of Wellington's annual report and thought I should peruse it.  I was quite surprised at the overall poor performance.  I'm not here to pick a fight with anyone (and I know some have big holdings in balanced funds), but here's some observations from the annual report ending 11/30/2021 (maybe I read it incorrectly):

--The stock side lagged its benchmark, the S&P500.  They explain why.

--The bond side returned negative -1.15%, slightly better than the benchmark.

--Net investment income has declined, per share, from yr 2019: $1.098, to 2020: $.966, to 2021 $.811.

--Net assets had outflows continuing, going from $18.4 billion in 2017 to $15.4 billion, 2021.

--income to assets, declining:  2019: 2.70%;  2020: 2.28%;  20212: 1.70%

----------------------------------------------------------------

These are significant changes, IMO.  Also, they are in line with outlooks by those less favoring balanced funds (ie better to split and invest in separate stock and bond funds). 

For instance, I posted of my selling out of all my standard issue, vanilla type bond funds starting two years ago, money now in very short term bond funds to MM Funds,  and now realizing this was a good move.  Total returns on such standard bond funds getting negative, with rates rising, and surely a net real return loss due to inflation and loss of purchasing power.

Also, we keep having these posts about PIMCO's leveraged fixed income CEF, PDI et al, and how annual income is sliding some, and NAV/price sliding a little, yet this is happening throughout the fixed income complex.

Not suggesting now what anyone is to do.  Rather, do others want to open/continue a dialogue here re Wellington and outlook going forward?  

R48

I think you bounce around the alternative to the bond side of Wellington.  Unless you want all your equity in VOO/SPY what do you propose aside from PDI and PDO (I have some of both)?  Cash?  My mother's (80+) advisor scoffs at bonds.  She is 7.5% cash, 7.5% annuity type product, 40% private placements and 45% public equity (mostly foreign). I've mostly gotten away from moderate allocation funds but still use them for short/medium term needs.  I have Wellesley and the Tax Managed Balanced fund because I don't have time to mess around with going in and out of IOFIX at the perfect moment.  However, as noted elsewhere I did buy iBonds for the first time in 20 years.

[shipwreckedandalone]

VWINX also has a new manager soon. I take these changes seriously. Not to say the change cannot be an improvement! I am saying in my book it requires a reset period of evaluation particularly with asset sizes already bloated.

PV provides a daily SD in the Asset Correlation tool but requires comparing funds.

[Deleted]

Wellington is only allocation fund in my retirement portfolio. It is 8% of my retirement pv. If I sell it, with prwcx closed, not sure what I can replace it by?

So until it really underperforms its category i guess it stays.

[retiredat48]

Jan 30, 2022 13:54:05 GMT acksurf said:

Jan 30, 2022 1:08:02 GMT retiredat48 said:

Had planned to start a thread on Wellington, but glad to see a thread already exists.  I also note not much posting activity for what was once a "super-thread" on M*.

Also disclosure:  Even though I have owned Wellington fund since 1953, for decades I have not been a fan of balanced funds...for various reasons.  And for the first time, sold some of my Wellington Fund over a year ago.

I just got notice of Wellington's annual report and thought I should peruse it.  I was quite surprised at the overall poor performance.  I'm not here to pick a fight with anyone (and I know some have big holdings in balanced funds), but here's some observations from the annual report ending 11/30/2021 (maybe I read it incorrectly):

--The stock side lagged its benchmark, the S&P500.  They explain why.

--The bond side returned negative -1.15%, slightly better than the benchmark.

--Net investment income has declined, per share, from yr 2019: $1.098, to 2020: $.966, to 2021 $.811.

--Net assets had outflows continuing, going from $18.4 billion in 2017 to $15.4 billion, 2021.

--income to assets, declining:  2019: 2.70%;  2020: 2.28%;  20212: 1.70%

----------------------------------------------------------------

These are significant changes, IMO.  Also, they are in line with outlooks by those less favoring balanced funds (ie better to split and invest in separate stock and bond funds). 

For instance, I posted of my selling out of all my standard issue, vanilla type bond funds starting two years ago, money now in very short term bond funds to MM Funds,  and now realizing this was a good move.  Total returns on such standard bond funds getting negative, with rates rising, and surely a net real return loss due to inflation and loss of purchasing power.

Also, we keep having these posts about PIMCO's leveraged fixed income CEF, PDI et al, and how annual income is sliding some, and NAV/price sliding a little, yet this is happening throughout the fixed income complex.

Not suggesting now what anyone is to do.  Rather, do others want to open/continue a dialogue here re Wellington and outlook going forward?  

R48

I think you bounce around the alternative to the bond side of Wellington.  Unless you want all your equity in VOO/SPY what do you propose aside from PDI and PDO (I have some of both)?  Cash?  My mother's (80+) advisor scoffs at bonds.  She is 7.5% cash, 7.5% annuity type product, 40% private placements and 45% public equity (mostly foreign). I've mostly gotten away from moderate allocation funds but still use them for short/medium term needs.  I have Wellesley and the Tax Managed Balanced fund because I don't have time to mess around with going in and out of IOFIX at the perfect moment.  However, as noted elsewhere I did buy iBonds for the first time in 20 years.

Fair enough acsurf...what is one to do??

Aside from splitting my bond side and stock side holdings into separate funds, then my major moves are:

--I now hold the largest percentage cash (and short term bond fund) position in my portfolio in my lifetime.

--sold all standard issue,vanilla bond funds ...such as BCOIX...in last two years.

--Moved this money to short duration bond funds.

--Use what I call fixed income (bond substitutes) to provide some yield boost.  These are: leveraged Fixed Income Closed End Funds, such as PDI; preferred share stock funds, leveraged and unleveraged, such as HPS; Income Builder Funds such as TIBIX...4+% yield; dividend growth funds such as VIG.

--My equity percentage is near the allocation  high side.

--I'm investing in last year in a fund I call: PATIENCE...simply waiting while i watch.  That is why my zero percent return in some things is perhaps paying off now, as total returns for bond funds goes negative.  And with 7% inflation--whew.  Can't stay cash forever.

None of this is easy!

R48


 

[acksurf]

Jan 30, 2022 19:33:12 GMT retiredat48 said:

Fair enough acsurf...what is one to do??

Aside from splitting my bond side and stock side holdings into separate funds, then my major moves are:

--now hold the largest percentage cash (and short term bond fund) position in my portfolio in my lifetime.

--sold all standard issue,vanilla bond funds ...such as BCOIX...in last two years.

--Moved this money to short duration bond funds.

--Use what I call fixed income (bond substitutes) to provide some yield boost.  These are: leveraged Fixed Income Close end Funds, such as PDI; preferred share stock funds, leveraged and unleveraged, such as HPS; Income Builder Funds such as TIBIX...4+% yield; dividend growth funds such as VIG.

--My equity percentage is near the allocation  high side.

--I'm investing in last year in a fund I call: PATIENCE...simply waiting while i watch.  That is why my zero percent return in some things is perhaps paying off now, as total returns for bond funds goes negative.  And with 7% inflation--whew.  Can't stay cash forever.

None of this is easy!

R48


 

Okay thanks.  It isn't easy and like you have a lot of cash building up!

[chang]

Just noticed that Wellington’s #3 holding is (or maybe was) Facebook. So I imagine they have some catching up to do, indeed.

[Mustang]

Feb 5, 2022 22:21:33 GMT chang said:

Just noticed that Wellington’s #3 holding is (or maybe was) Facebook. So I imagine they have some catching up to do, indeed.

I don't understand.  How does holding 2.9% in Facebook mean it has some catching up to do?   Schwab, Apple, JP Morgan, and McDonalds are all above 2%.  Microsoft and Alphabet are above 4.5%.  money.usnews.com/funds/mutual-funds/allocation-50-to-70-equity/vanguard-wellington-fund/vwelx/holdings

According to Morningstar, it outperformed its category by 4.77 points for the last 12 months.

[chang]

Posted on the day FB fell 27%.

[FD1000]

Wellington is a fund usually held by most for years. I understand the OP if the fund lagged for several years. The numbers show the fund ranks in its category for 1-3-5 years at 22-25.
That's really all you need to know.

[Mustang]

According to Morningstar, Wellington's 12-month performance is 3.02 points above its category average. Its 3-year performance is 1.55 points above. And, its 10-year performance is 1.96 above. Morningstar also reports that it finished in the top quartile in 2021, the third quartile in 2020, and the top quartile in 2019. They report that it has finished in the top quartile 7 of the last 10 years. I don't think being number 25 out of over 700 is that bad.

Even when it is in the third quartile its return were 10.7% and the very next year they were 16.3%

If you are chasing short term profits go for it. I'm in for the long term. YTD the fund is in the bottom quartile but the data tells me that management has the skill to turn that around. Just like they did when they changed it category from value to blend.  Since YTD it is down 10.8% I intend to buy more. If I were withdrawing this would be the year I would withdrawal from Wellesley not Wellington.  I would let Wellington recover.

[steadyeddy]

Mar 9, 2022 19:13:43 GMT Mustang said:

According to Morningstar, Wellington's 12-month performance is 3.02 points above its category average. Its 3-year performance is 1.55 points above. And, its 10-year performance is 1.96 above. Morningstar also reports that it finished in the top quartile in 2021, the third quartile in 2020, and the top quartile in 2019. They report that it has finished in the top quartile 7 of the last 10 years. I don't think being number 25 out of over 700 is that bad.

Even when it is in the third quartile its return were 10.7% and the very next year they were 16.3%

If you are chasing short term profits go for it. I'm in for the long term. YTD the fund is in the bottom quartile but the data tells me that management has the skill to turn that around. Just like they did when they changed it category from value to blend.  Since YTD it is down 10.8% I intend to buy more. If I were withdrawing this would be the year I would withdrawal from Wellesley not Wellington.  I would let Wellington recover.

Mustang, I completely agree. The W's are for the most part buy and hold type funds.

[Deleted]

Have often thought Wellesley and Wellington might be a consideration if individual companies prove too much effort.