The Vanguard Group, the world’s largest mutual fund company, actually began as an idea its founder John Bogle had while working at Wellington Management Company. Bogle convinced the board to allow him to start the first retail index fund, which is now the Vanguard 500 Index Fund. Since then, Vanguard has launched more than 200 funds, managing more than $5.25 trillion.

The Vanguard Wellesley Income Fund (VWINX) is a remnant of the Wellington Management Company, which now exclusively manages institutional money; Wellington remains the fund's investment advisor.

Established in 1970, the Wellesley Income Fund has become one of the more successful income-oriented balanced funds for conservative investors. This is an overview of the fund, along with several fund highlights.

Key Takeaways

  • The Vanguard Wellesley Income Fund is a balanced income fund with a portfolio of 30-50% stocks and the rest in investment-grade bonds.
  • This $60 billion mutual fund is primarily oriented to medium-term investors who want steady income and who are willing to accept a modest level of risk.
  • The fund has been around since 1929 and is a holdover from when Vanguard purchased Wellington Management in 1975.

Investment Objective

Although the Wellesley Income Fund is categorized as an income fund, it utilizes a more balanced approach to achieve its income objective. The fund’s overall investment objective is to seek consistent total returns made up of current income from bonds, dividends, and capital appreciation. As much as one-third of the portfolio may be invested in stocks of companies with a history of paying above-average dividends that increase over time.

Portfolio Management

The portfolio management team is led by John C. Keogh and W. Michael Reckmeyer both senior managing directors and partners at Wellington Management. Keogh is the fixed-income portfolio manager, and Reckmeyer is the equity portfolio manager. Keogh joined Wellington Management in 1983 after working for several years in portfolio management at Connecticut National Bank. Reckmeyer, whose main focus is on researching large-cap, value-oriented companies with a strong dividend history, joined Wellington Management in 1994 following eight years as a research analyst for Kemper Financial Services. He earned both his Master of Business Administration (MBA) and B.S. in mechanical engineering from the University of Wisconsin. He is also a chartered financial analyst (CFA).

Reckmeyer has managed the fund since 2007, Keogh since 2008. Loran Moran and Michael Stack joined them in early 2017. They too hold positions at Wellington Management and also work on its other funds.

Investment Portfolio

The $60 billion fund utilizes a balanced approach that emphasizes fixed-income securities with up to two-thirds invested in investment-grade corporate bonds and US. government bonds. The other portion is invested in large-cap, dividend-paying stocks.

It is therefore a balanced fund that seeks between 30-50% in large-cap equities and the balance in investment-grade corporate and government bonds. As of March 2020, the fund's portfolio is comprised approximately of 40% stocks and 60% bonds. It holds 65 blue-chip stocks and more than 1,100 individual bond positions with an average duration of 7.0 years and yield-to-maturity of 2.0%.

Investment Performance

The balanced approach has worked very well for investors. The fund has generated an average annual return of nearly 10% since its inception. More significantly, the fund consistently demonstrates its ability to limit its downside. During the 2008 stock market collapse, for example, it declined just 10%, which was less than its category and far less than stock-only funds.

As of March 2020, over the last three years, the fund has an average pre-tax annualized return of 7.71%, 6.46% for the last five years and 7.98% for 10 years – results that have consistently earned it a five-star rating from Morningstar Inc. It requires a minimum investment of $3,000, but its expense ratio of 0.23% is considered to be quite low for its category.

The Bottom Line

The Wellesley Income Fund could be considered as a core holding for conservative investors looking for a solid stream of income with some capital appreciation. The fund offers upside potential with limited volatility. It could also be a good satellite holding for moderate or aggressive investors revamping the equity portion of their portfolio. The fund is not without its risks, as its large exposure to bonds could react negatively to increasing interest rates.