(Money Magazine) -- Vanguard Wellington is a throwback. Before mutual funds became specialized, so-called balanced funds like this -- which invests in both stocks and bonds -- were core holdings you could feel comfortable putting most of your money into.
Of course, there was another reason to like this fund. Over the past 80 years, it has delivered near equity-like returns with less risk than the market. All the while, it has beaten most of its peers. Quite a feat. Can Wellington keep this stellar run going?
Protects in bad times
Wellington Management, the firm that runs this fund for Vanguard, has a long-held reputation for seeking safety over outsize gains. The company was, after all, run by John Bogle before he founded Vanguard.
The fund's current managers often share this mindset. Edward Bousa, who has run the equity portion of the portfolio since 2000, looks for blue-chip companies that have fallen out of favor but still have solid financials and a competitive advantage.
On the fixed-income side, John Keogh, co-manager since 2003, follows the same script, sticking to bonds of companies with strong balance sheets. This discipline paid off in the financial crisis of 2008, when the fund beat 87% of its peers.
Lags in good times
While this fund protected you in 2008, Wellington trailed a majority of the competition last year. Why? The managers favor shares of firms that produce dividends, which tend to be mature, slower growers.
So the fund tilts toward income-producing sectors like energy and health care (Bousa and Keogh currently favor drug stocks like Eli Lilly), while underweighting technology. Yet tech is up 79% since last March, vs. 48% for health care.
But Bousa and Keogh "look at what will build wealth for shareholders over the long term," not the short run, says Morningstar analyst Dan Culloton. And over the past five and 10 years, it has beaten more than 95% of similar balanced funds.
Hard to fit in a portfolio
Like all balanced funds, Wellington doesn't neatly fit into a portfolio. If you're putting most of your money into it, the fund's mix of two-thirds stocks and one-third bonds may be suitable for most of your life.
But Wellington won't grow more conservative as you age -- like a target-date fund would -- so it may be too risky as a single holding in retirement.
If Wellington is just one of many funds you own, there are other worries. The fund is more stock-heavy than its average peer. And the managers shift their equity stake from 60% to 70%. So you may not be able to tell if the fund is tipping your overall equity exposure. That said, the folks at Wellington aren't the type to push you to the extremes.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.01%||4.04%|
|15 yr fixed||3.11%||3.18%|
|30 yr refi||4.00%||4.03%|
|15 yr refi||3.11%||3.16%|
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