Vanguard Global Wellesley Income: It's Brand New And It's Already A Buy
- The Vanguard Global Wellesley Income Fund will launch on November 1.
- Global Wellesley will maintain the same 1/3 stock, 2/3 bond allocation as the original.
- It could have as much as half of the portfolio invested overseas, with the majority of that going to Europe.
- Investors will be keenly interested in the fund's dividend yield, which I think will be around 2.5%.
- Given the stellar history of Wellington Management and Wellesley Income's track record, investors should feel comfortable buying this fund right away.
The Vanguard Wellesley Income Fund (VWINX) has amassed more than $54 billion in assets thanks to a 47-year history of delivering superior returns despite maintaining a conservative allocation of ⅓ stocks and ⅔ bonds. Since its inception, the fund has returned nearly 10% a year and has done so with just half the risk of the S&P 500. It has a 5-star rating from Morningstar and remains one of Vanguard’s most popular offerings.
So it’s no surprise that interest is high in the new Vanguard Global Wellesley Income Fund (MUTF:VGWIX) that is scheduled to debut on November 1st along with the Vanguard Global Wellington Fund (VGWLX). It’s expected to have much the same investment style and objective as the original, with the exception of the fact that it’s expected to have roughly half of its portfolio invested overseas.
With the 30-year bull market in bonds looking like it may have hit its peak and the domestic equity markets nearing their 9th consecutive year of gains, now could be a good time for Global Wellesley Income to debut.
Global Wellesley Income is designed, first and foremost, to be an income producing fund. As mentioned above, the fund will keep around ⅔ of assets in investment grade fixed income securities both at home and abroad. Those bonds can be corporate, government, government agency or mortgage-backed securities. The remaining ⅓ of the fund will be invested in large- and mid-cap companies that have a history of above average dividends and the expectation of increasing dividends going forward.
The fund will carry the same minimums as Wellesley Income, $3,000 for the lower minimum Investor class shares, and $50,000 for the cheaper Admiral share class. The expense ratio for the Investor shares is 0.42%, while the Admiral shares charge 0.32%. Vanguard points out that these expense ratios are 50-60% lower than the industry average.
Global Wellesley Income will no doubt be sought out by income seekers, but figuring out what the fund’s yield will look like is something of a guessing game. Considering that the fund hasn’t even launched yet, we have little more than the fund’s prospectus to go off of for clues.
Wellesley Income has a yield of 2.7%. Given the international exposure that it will have, it’s reasonable to think that Global Wellesley will carry a somewhat higher yield. What’s less immediately clear is where that yield will come from. Most Europe equity ETFs have yields in the 2.0-2.3% range, with certain countries yielding a bit higher. The best European comp for Global Wellesley may be the First Trust STOXX European Select Dividend Index ETF (FDD), which yields a little over 3%. Asian equities yield a little more. The Vanguard FTSE Pacific ETF (VPL) yields 2.4%, while the iShares Asia/Pacific Dividend ETF (DVYA) yields 4.3%. Asian equities won’t be a huge focus of Global Wellesley, but it looks like it might be able to boost the fund’s overall dividend.
On the fixed income side, don’t look for big yields from overseas. Most European government bonds yield less than 2%, while Asian bonds don’t yield much more. Just 15% of Wellesley Income’s fixed income allocation comes from government notes, so it’s reasonable to think that Global Wellesley will also look largely to the corporate bond market to fill out its portfolio. When all is said and done, I’d expect Global Wellesley to settle in with a yield around 2.5%.
Vanguard has been relatively tight-lipped as to what the fund will look like outside of the ⅔ bonds, ⅓ stocks allocation. This article suggests that the fund will have around 45% invested in North America, 43% invested in Europe and the remaining assets dedicated to Asia and emerging markets. Wellesley Income has just 6% of its assets invested overseas, so Global Wellesley has the potential to look radically different than its counterpart.
One thing Global Wellesley has going for it is that it will carry over much of the Wellesley Income fund management team. Three of the four Wellesley Income managers will oversee Global Wellesley. The only manager only working on Global Wellesley, Ian Link, has been with Wellington Management since 2006, providing an additional degree of consistency. The management style you see in Wellesley Income will very likely be the same management style you see in Global Wellesley.
It’s a brand new fund, but investors should have a pretty good idea of what they’re getting with Global Wellesley Income. The only real question is how the fund’s international allocation will fare. The fund’s equity and fixed income positions should skew pretty conservative, but I like the idea that its foreign allocation could not only help manages the fund’s overall risk, but enhance its return potential as well. Many overseas markets still look attractive despite their strong performance in 2017, and that could get this fund off to a solid start.
If Global Wellesley Income is like its predecessor, and early indications are that it will be, Vanguard looks like it has another hit on its hands. Even though it’s just getting started, investors should feel comfortable adding this fund to their portfolios right away.
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