The Oldest Balanced Fund Is Still a Top Choice

Key Morningstar Metrics for Vanguard Wellington

• Morningstar Medalist Rating: Gold
• Process Pillar: High
• People Pillar: Above Average
• Parent Pillar: High

Experienced managers with deep resources oversee Vanguard Wellington’s exceptional process, which is grounded in bottom-up research. Combined with low fees, this balanced fund continues to be a top choice for investors.

Managers Daniel Pozen and Loren Moran lead the equity and fixed-income sleeves, respectively, and oversee the portfolio’s 65% stock/35% bond allocation. Pozen joined Wellington in 2006 and started working on this fund in 2015. He took sole control of the equity sleeve when longtime manager Edward Bousa retired in 2020. Moran has comanaged the fund since 2017 and took the reins of the bond sleeve in 2021 after a multiyear transition that saw two longtime managers retire in 2019 and 2021. These transitions were thoughtfully managed, and both managers were well-equipped to take over.

The two lead managers keep the stock/bond split close to its strategic target despite being afforded leeway of 5 percentage points in either direction. Making short-term calls on when equities will outperform bonds is difficult to consistently get right, so keeping the allocation tight means the team’s strength of security selection, rather than asset-allocation decisions, will be the primary driver of returns. This should continue to be a tailwind for long-term investors.

The equity team meticulously selects stocks, using an intrinsic value framework focusing on high-quality companies that can endure through numerous market cycles. The result is a high-conviction portfolio of 60-90 stocks that Pozen and team look to hold for the long run, targeting 25%-35% yearly turnover. Since Pozen became lead in 2020, he has made some adjustments to the portfolio like eliminating the fund’s historic tilt toward value stocks, moving the fund into the large-blend spot of the Morningstar Style Box and closer to the equity sleeve’s S&P 500 benchmark.

The bond sleeve consists of almost entirely investment-grade bonds and tends to have a longer duration than peers. The team has historically allocated around 60% of the sleeve to corporate debt, 20% to taxable municipal bonds and asset-backed securities, and the remainder to US Treasuries and agency securities for liquidity management. This composition has provided a ballast to the equity sleeve, like during 2022′s falling stock markets when the fund still outpaced almost 60% of peers.

Vanguard Wellington: Performance Highlights

This fund continues to be a standout performer. Over the trailing 15- and 20-year periods through February 2024, the Admiral share class outpaced both the moderate allocation Morningstar Category and Morningstar Moderate Target Risk Index benchmark. Its risk-adjusted returns (as measured by Sharpe ratio) landed in the top decile of the category over both periods. The fund has similarly outperformed over shorter periods, logging top-quintile absolute and risk-adjusted returns in the trailing three- and five-year periods.

The fund’s 14.4% return in 2023 outpaced almost 60% of peers but trailed its 65% S&P 500 and 35% Bloomberg US Credit A or Better Bond Index benchmark by just over 5 percentage points. An underweighting in technology and stock selection within some sectors like healthcare, industrials, and consumer discretionary detracted from performance. The fund’s five largest holdings are members of the high-flying “Magnificent Seven,” which helped, but Tesla TSLA and Nvidia NVDA were notable exclusions and two of the largest detractors from performance.