The Vanguard Wellington Fund (VWELX +1.80%) is the oldest balanced fund in the U.S., offering investors low-cost exposure to both stocks and bonds. The fund's investor shares have a track record of strong performance going all the way back to the Great Depression, and could be a good fit for a diversified, balanced portfolio.
About the Wellington fund and its investment objectives
The Vanguard Wellington Fund was formed in 1929, and invests about two-thirds of its assets in a diverse collection of stocks, with the other third in high-quality bonds. Most (but not all) of the stocks are dividend-paying, and are established companies that the fund's managers feel are undervalued. In a nutshell, the goal of the fund is to produce a well-diversified portfolio that can produce strong returns over time without a high level of risk.
Image source: Getty Images.
It's important to note that the Vanguard Wellington Fund is currently closed to new investors, except those who invest directly through a Vanguard brokerage account, according to the fund's latest prospectus on Vanguard's website. In other words, you can't just log onto any discount brokerage and buy shares of the fund.
Current investments
As of the latest available data, about 65.7% of the fund's assets are in stocks, 33.1% are in bonds, and 1.25% are in short-term reserves. There are 93 stocks in the fund's portfolio, and the 10 largest holdings are:
|
Rank |
Stock |
Symbol |
|---|---|---|
|
1 |
Wells Fargo |
WFC |
|
2 |
Merck |
MRK |
|
3 |
Microsoft |
MSFT |
|
4 |
Comcast |
CMCSA |
|
5 |
Alphabet |
GOOGL, GOOG |
|
6 |
Chevron |
CVX |
|
7 |
Intel |
INTC |
|
8 |
JPMorgan Chase |
JPM |
|
9 |
Verizon |
VZ |
|
10 |
Chubb |
CB |
Source: Vanguard.
How much does it cost?
The Wellington Fund's investor shares have a relatively low 0.26% expense ratio, 69% lower than similar funds. Investors will need a minimum $3,000 investment to get started.
It's also worth mentioning that for people who may have more money to invest, there are also Wellington Fund Admiral Shares (VWENX +1.81%) that come with a lower 0.18% expense ratio, but require a higher minimum initial commitment of $50,000. These expense ratios may sound quite similar, but could make a pretty big difference over long time periods, so if you have more to invest, you may want to consider the Admiral Shares.
Steady, strong performance
The Vanguard Wellington Fund compares its performance to a benchmark consisting of 65% of the S&P 500's performance and 35% of the Barclays U.S. Credit A or Better Bond Index. Over recent time periods, here's how the fund compared to the performance of its benchmark indices:
|
Time period |
Wellington Fund Return (%, annualized) |
Benchmark performance |
|---|---|---|
|
1 Year |
4.75% |
5.59% |
|
3 Year |
8.30% |
9.50% |
|
5 Year |
8.96% |
9.73% |
|
10 Year |
7.40% |
7.08% |
Source: Vanguard.
A few things to notice here. First, notice that the fund has underperformed its benchmark over the past five years. This is rather common for well-diversified funds during times when the market has performed exceptionally well -- as it has over the past five years. The long-term (10 year) performance is ahead of the benchmark index, which I tend to put more stock in since it includes the bull market of the recent years, but also includes the fund's performance during the financial crisis.
Additionally, it's worth noting that the fund's annualized performance since its 1929 inception is 8.23% per year. The benchmark indices haven't existed that long, so there's no ideal basis for comparison, but the stock and bond markets have historically returned about 9.5% and 5%, respectively since the fund was created, which should theoretically translate to annualized returns of about 7.9%, based on the fund's current benchmark composition.
So, it's fair to say that the fund has an impressive history of staying slightly ahead of its benchmark over nearly nine decades. And, while these returns may sound rather similar, consider that $1,000 invested in a 65/35 combination of stocks and bonds would have grown to $761,000 since 1929, while the same investment in the Wellington fund would have produced over $973,000. The point is that it's important not to ignore small performance differences, as they can make a big difference over time.
Who should invest in the Wellington fund?
One potential turnoff to some investors is the fund's bond exposure. For example, I tend to keep more than two-thirds of my portfolio in stocks, since I'm only 35 and have the time horizon to ride out the market's ups and downs. Having said that, the Wellington fund is great for investors who want to take a more balanced approach, or as a way to diversify an existing stock portfolio.
