investing

The Well-Balanced Vanguard Wellington

Vanguard's oldest fund offers a ready-made mix of stocks and bonds.

Editor's note: This article is part of a continuing series on the 20 largest no-load stock funds.

Wouldn't it be nice if you could buy and hold a fund forever, making pretty much a single allocation decision? That's essentially the principle behind Vanguard Wellington, the granddaddy of balanced funds. Launched in 1929, this is Vanguard's oldest fund. And it's the largest balanced fund (65% stocks, 35% bonds) in the industry.

Edward Bousa of sub-adviser Wellington Management Co. picks the stocks, and his colleague John Keogh constructs the bond portfolio. "Consistency is the hallmark of the fund," says Bousa. During the past twenty years, Vanguard Wellington has suffered only three down years. The hybrid portfolio has returned nearly 10% annualized over the past ten years, beating Vanguard's Balanced Index fund by about two percentage points per year, on average. Year-to-date through November 17, Wellington rose an impressive 13%, pretty spiffy for a fund with such a large fixed-income allocation.

One way Bousa picks stocks is by studying and projecting the supply and demand picture for industries and sectors. The idea is that when an industry is experiencing a supply shortage, companies that produce that particular product can raise prices. That often results in happy earning surprises -- and rising share prices. For example, Bousa loaded up on oil and gas stocks, including ExxonMobil and ConocoPhillips, when he saw that surging energy demand from China and India would strain supply. After observing the massive spending on telecom and technology in the late 1990s, Bousa decided to largely avoid those sectors. These days, Bousa thinks the supply-demand picture for food is attractive, so he's investing in such companies as John Deere, the big agriculture equipment maker, and Syngenta, a Swiss seed-technology outfit. (Bousa thinks globally and keeps 15% to 17% of the fund's stock allocation in foreign companies.)

This fund has a value bent to it -- the dividend yield in the stock portion of the portfolio is 2.2%, 20% above the market's average yield. But like some other bargain hunters, Bousa has been detecting value of late in traditional growth stocks. "Whenever we can get growth stocks at value prices, it lowers our risk," he says. This line of thinking led him to invest in Medtronic in the beaten-down medical equipment sector. He also looks for companies that are innovators and leaders in their businesses (for example, DuPont), or "broken growth" companies, such as General Electric. When he pulls the trigger, he holds companies for four years on average.

If you have a lot of money, you probably should build a "balanced" portfolio using the best and most appropriate pure stock and bond funds. But as in so many businesses, there's much to be said for simplicity in investing. You can do far worse than to buy Vanguard Wellington -- and you'll probably sleep well at night. We rate the fund a BUY for investors seeking a fund with a third of its assets devoted to bonds.

 

FUND FACTS

 

Vanguard Wellington (VWELX)

Assets: $44 billion
Managers (year started): Edward Bousa (2002), John Keogh (2005)

Return (vs. S&P 500)*:
Year to date: 12.9% (13.9%)
One year: 14.4% (14.9%)
Three years annualized: 12.3% (12.3%)
Five years annualized: 9.0% (6.1%)
Ten years annualized: 9.6% (8.3%)

Expense ratio: 0.29%
Portfolio turnover: 24%
Minimum investment: $10,000
Phone: 800-997-2798
Web site: www.vanguard.com

*Returns through Nov. 17
Fund Fact sources: Standard & Poor's, Morningstar

View updated data for this fund and compare the performance of the 20 biggest no-load stock funds.

Go to A Close Look at the 20 Biggest No-Load Stock Funds.

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