Vanguard Wellington Fund (VWELX) is one of the best balanced funds around. It is also one of the oldest mutual funds, being founded in 1929. The fund has weathered wars, financial crises, economic recessions (and the Great Depression), and natural disasters in its eight-decade-long history. From 1987 (the first year we have historical prices for the fund) to July 21, 2011, the fund had 9.3% annualized return and half of the stock market S&P 500 standard deviation (about 11%), compared with the 8.6% annualized return and 19% standard deviation of S&P 500 total return (using Vanguard 500 fund).
Another way to see how well the Wellington fund has done is to compare it with a standard 60% stocks 40% bonds balanced index fund (VBINX). From June 20, 1996 (the first date we have a price of VBINX) to July 21, 2011, the following is the performance comparison:
|Annualzed Return (%)||Standard Deviation|
Wellington Fund achieved its outstanding long term performance with the two important features:
- It is a balanced fund with 60-70% in common stocks and 30-40% in fixed income.
- In common stock investing, it mainly invests in dividend paying stocks.
Since Vanguard Wellington beat the balanced fund by a big margin and does not alter its asset allocation dramatically, one can conclude that the outperformance mainly came from security selection or its dividend stock selection.
Here are the top 10 holdings of Wellington Fund.
The stock holdings have the following ratios:
|3 Year Earnings Growth||3.04%||5.00%|
From the above, one can see that the fund is in favor of energy, pharmaceutical and financial companies.
Let's compare this fund with diversified dividend paying ETF portfolios that use stock and REIT ETFs . The model portfolios are moderate allocaiton (60% in risk assets and 40% in fixed income).
Portfolio Performance Comparison
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Strategic Asset Allocation Moderate||13%||167%||6%||29%||5%||28%|
|Retirement Income ETFs Tactical Asset Allocation Moderate||11%||151%||11%||96%||11%||82%|
[Click to enlarge]
One can see that the Wellington Fund outperformed the diversified strategic asset allocaiton portfolio in the past five years. This is remarkable as the diversified ETF portfolios can invest in foreign and emerging market stocks and commodities, which the fund cannot.
In conclusion, for dividend stock investors, the Wellington fund's stock holdings are very good candidates.