What New Management May Mean for Vanguard Wellesley Income

A carefully planned leadership transition; an experienced team employing a time-tested, risk-aware process; and low fees support Vanguard Wellesley Income's VWINX Morningstar Analyst Rating of Gold. Michael Reckmeyer has been the lead equity manager of this conservative-allocation fund since January 2007 and will retire at the end of June 2022. He is passing the reins to Matthew Hand, who has been on the team since 2004. Hand is a solid choice; he knows the investment process intimately and is an 18-year Wellington veteran. On the bond side, John Keogh retired in 2019 and Michael Stack retired in 2021, leaving Loren Moran in charge. She had worked closely with both since 2014. Minimal disruption is anticipated since Hand's and Moran's investment philosophies align with those of their predecessors. In addition, they will continue to work closely with Wellington's well-regarded global industry analysts, credit analysts, and macro analysts. The equity team employs a disciplined, quality-focused process that emphasizes reliable income. They invest the roughly 35% equity sleeve in strong dividend payers such as Johnson & Johnson JNJ and JPMorgan Chase JPM, which the team buys when they are out of favor. Each holding needs to have a dividend yield higher than that of the S&P 500 at purchase and is sold when its yield falls below that of the index. The 65% fixed-income allocation is tilted toward investment-grade corporate credit, which offers a better payout than higher-rated securities but still has little default risk. The fund also has a higher duration relative to peers, which means it is more sensitive to sudden increases in interest rates. The fund has generated top-decile returns with its allocation--30% to 50% equity Morningstar category over the trailing 10 and 15 years through February 2022. And despite its value tilt, its three- and five-year rankings remained within the top quintile, a period when value underperformed. This is attributable primarily to good downside protection. For example, the fund outperformed in the first quarter of 2020, declining 7.4% while its average peer fell 12.2%. The fund's management, process, and low fees inspire confidence for the long term.

Key Proprietary Morningstar Metrics

Morningstar Analyst Rating: Gold Process Pillar: High People Pillar: Above Average Parent Pillar: High