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Do You Know this about Vanguard Wellington and Wellesley Funds?

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As you know our concerns about Vanguard continue to mount.

Yesterday, a reader wrote: “[Dick] used to be big on Wellington and Wellesley, given their longevity and resistance to tail risk over time. Also, it seemed to me that Wellington Management’s fixed income expertise would be an asset in this part of the cycle. I’m wondering why he has soured on these funds.”

The quick answer is no we have not soured on Wellington and Wellesley with two distinctions.

First, Vanguard has nothing to do with the management of Wellington and Wellesley. Vanguard has outsourced those management responsibilities to Wellington Management in Boston, MA.

Second, the Wellington and Wellesley funds only invest in large U.S. companies (they do have international funds now), and their bonds go out too far—the bonds in Wellington have an effective maturity of 9.4 years and Wellesley 8.3 years.

At Young Research we recommend owning dividend paying stocks outright and bonds with an average maturity about half as many years as Wellesley and Wellington—laddering bonds helps to strip out the interest rate risk since you can hold them until maturity.

Yes, there is a lot of history between Wellington Management, Vanguard and Richard Young, but don’t forget that in the case of Wellington Management and Vanguard they are two separate companies all together.

From my father-in-law Dick Young:

My history with Wellington Management and the Vanguard group goes back decades. I started with Wellington over 40 years ago. The Wellington Fund was founded in 1929 by CPA Walter Morgan to provide investment counsel to his clients.

Morgan had the foresight to load the Wellington Fund with fixed-income securities months before the 1929 stock market crash. That decision helped Wellington become the tenth largest in the industry by 1944.

In 1951, Morgan hired John Bogle, who would eventually become the firm’s CEO. In 1974, Bogle left Wellington Management and founded the Vanguard Group, bringing the Wellington Fund and its sister funds along with him. With Bogle gone, the firm was left in the hands of his partners, W. Nicholas Thorndike, Robert Doran, Stephen Paine and George Lewis.

In the 80s Wellington Management expanded to London, and from there grew into a global operation, later opening Singapore, Tokyo and Sydney offices in the 90s. In the early 21st Century, Wellington opened offices in Hong Kong, Frankfurt, Beijing, Luxembourg, and Zurich. Today the firm has 13 offices around the world, and manages $1 trillion in client assets in 62 countries.

Wellington Management Company manages a wide ranging group of funds for the Vanguard Group, including:

Vanguard Capital Value Fund (VCVLX) (0328)

Vanguard Dividend Growth Fund (VDIGX) (0057)

Vanguard Emerging Markets Select Stock Fund (VMMSX) (0752)

Vanguard Energy Fund Investor Shares (VGENX) (0051)

Vanguard Equity Income Fund Investor Shares (VEIPX) (0065)

Vanguard Explorer Fund Investor Shares (VEXPX) (0024)

Vanguard Global Wellesley Income Fund Investor Shares (VGWIX) (1496)

Vanguard Global Wellington Fund Investor Shares (VGWLX) (1567)

Vanguard GNMA Fund Investor Shares (VFIIX) (0036)

Vanguard Health Care Fund Investor Shares (VGHCX) (0052)

Vanguard High-Yield Corporate Fund Investor Shares (VWEHX) (0029)

Vanguard International Explorer Fund (VINEX) (0126)

Vanguard Long-Term Investment-Grade Fund Investor Shares (VWESX) (0028)

Vanguard Morgan Growth Fund Investor Shares (VMRGX) (0026)

Vanguard U.S. Growth Fund Investor Shares (VWUSX) (0023)

Vanguard Wellesley Income Fund Investor Shares (VWINX) (0027)

Vanguard Wellington Fund Investor Shares (VWELX) (0021)

Vanguard Windsor Fund Investor Shares (VWNDX) (0022)

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com