In the ever-changing world of investing, the Vanguard Wellington fund is a true survivor. Founded in 1929, it was the first balanced mutual fund in the United States. From an initial investment of $100,000, the Vanguard Wellington fund has grown to nearly $106 billion of assets under management (AUM) as of Sept. 30, 2018.
The fund managers practice active management by allocating 60% to 70% of the portfolio to equities, while the remainder is invested in fixed-income instruments. The fund emphasizes high quality in its equity and bond picks and prefers the stocks of large-cap companies that have a consistent history of paying dividends.
The fund is administered by the Vanguard Group and managed by Wellington Management Company.
Vanguard’s managers have adhered to a fairly consistent investment strategy over the last 30 years. The fund puts equal weight on current income, capital growth and capital preservation. True to Vanguard's reputation, the fund focuses on high-profile, dividend-paying companies with strong economic moats, whose stocks possess value and growth characteristics. Its bond portfolio concentrates on high-quality corporate bonds and mortgage-backed securities that can withstand market turbulence.
As of Sept. 30, 2018, the fund allocated 65.15% of its portfolio to stocks, 31.19% to bonds and 3.66% to short-term reserves. Its top holdings included Microsoft, JPMorgan Chase, Verizon, Bank of America and Alphabet.
The fixed-income portion of its portfolio is invested heavily in the bonds of industrial companies, with more than a third of the total allocation, and financial services companies, with an allocation of about one quarter. More than 90% of the bond holdings are of investment grade, and the average duration stands at 6.6 years, making this fund somewhat sensitive to interest rate changes. It demonstrated a 30-day Securities and Exchange Commission (SEC) yield of 2.70% as of the end of the third quarter of 2018.
The fund has been managed by Edward Bousa since 2002 and John Keogh since 2006. Bousa, who has more than 35 years of investment experience, oversees the equity portion of the fund's portfolio. He prefers to hold between 90 and 120 stocks with above-average dividend yields. Keogh is a senior vice president and fixed-income portfolio manager at Vanguard who has over 35 years of investment industry experience. He maintains the fixed-income portion of the fund's portfolio.
As of the end of the third quarter of 2018, the fund demonstrated a year-to-date return of 8.29%. Oddly, that’s nearly identical to its average annual return of 8.22% since its creation on July 1, 1929. For the three-year period ending Sept. 30, 2018, it showed an average annual return of 11.4%, For the five-year period, it had an average annual return of 9.04%. Over 10 years, it returned 9.40%.
For the Vanguard Wellington Fund Investor Shares' consistent history of strong risk-adjusted returns and competent management, Morningstar awarded it a gold analyst rating and a five-star overall rating in the moderate allocation category, among 861 mutual funds. The fund also earned five-star ratings over the three-, five- and 10-year periods.
As for fees, the Vanguard Wellington Fund Investor Shares is one of the most inexpensive mutual funds in the moderate allocation category. It has a net expense ratio of 0.26%, which is significantly lower than the average expense ratio of 0.90% for its investment category. The fund also offers qualified investors Admiral Shares that have even lower expense ratios but require higher investments. The fund has no load fees and comes with an initial investment requirement of $3,000.