Vanguard Wellesley Income Is Still a Strong Choice Despite a Tough Stretch

Key Morningstar Metrics for Vanguard Wellesley Income Fund

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

Vanguard Wellesley Income’s VWIAX disciplined approach, experienced leadership, and attractive fees make this fund an appealing choice for investors seeking steady income and a defensive profile. While recent performance has lagged, the fund’s long-term durability and fundamental strengths persist.

Equity manager Matthew Hand and fixed-income manager Loren Moran guide the strategy’s 35% stock/65% bond allocation and have led their respective sleeves since 2022 and 2021. The target can shift by 5 percentage points, but the managers have kept the equity allocation between 36% and 40% over their shared tenure as leads, so they haven’t gone underweight. This tight band around the strategic weightings keeps the emphasis on bottom-up security selection rather than asset-allocation calls, which should continue to benefit long-term shareholders since it plays to each team’s strength in fundamental analysis.

Hand applies a patient, contrarian approach, favoring high-quality dividend payers facing short-term pressures but exhibiting durable fundamentals. This leads to a portfolio of typically 45-75 companies that leans toward value stocks and defensive sectors. Moran builds an investment-grade bond portfolio designed to provide ballast to equities, with corporate credit typically representing around 60% of the sleeve. The team aims for quality issuers selected through rigorous credit research.

This fund has struggled in recent years, reflecting market conditions that did not favor its positioning. The fund’s defensive profile can be a headwind when taking on more risk is rewarded, like the growth-driven markets in 2023 and 2024, when the fund trailed at least 90% of its moderately conservative allocation Morningstar Category and the Morningstar Moderately Conservative Target Risk Index benchmark. Performance improved in 2025 but remained below peers and the benchmark.

Despite recent challenges, the fund has maintained a strong long-term record, supported by resilience during market downturns, such as 2022’s dual equity-bond selloff when the fund held up meaningfully better than peers and benchmarks; its 9.0% drawdown beat the typical peer and benchmark by at least 4 percentage points. Suppressing losses during stress periods has been a winning long-term strategy for the fund and underlines conviction in the approach.

Vanguard Wellesley Income Fund: Performance Highlights

This fund has underperformed in recent years but maintains a compelling long-term track record. Over Moran and Hand’s shared tenures as leads, which started in July 2022, when Hand took over the equity sleeve, the fund’s 7.9% annualized return trailed the moderately conservative allocation category median of 9.1% and lagged 85% of the peer group through February 2026. The fund underperformed the Morningstar Moderately Conservative Target Risk Index’s 9.2% gain; its Sharpe ratio, a measure of risk-adjusted return, lagged 85% of category rivals.

Both 2023 and 2024 were challenging years for the fund; its 7.1% and 6.0% returns trailed the category median by 3.7 and 2.2 percentage points, respectively. The fund’s value bias was a headwind as growth stocks handily outperformed value stocks during both years. Relative performance improved in 2025, but the fund still trailed the benchmark and 53% of peers. Environments where risk is rewarded can be challenging for this fund, given its more defensive posture.

Recent challenges aside, the fund’s impressive long-term results remain intact. Over the trailing 15- and 20-year periods, its respective 6.8% and 6.7% returns bested at least 83% of its category. The fund’s long-term performance has been buoyed by its durability in market downturns, like during 2022’s stock and bond market declines. The fund dropped 9% that year compared with 13% for the average peer, with the benchmark falling by 4.9 percentage points more.